FOREX-Dollar boosted by Citi earnings, euro retreats

(Recasts, updates prices, clarifies connection between Citigroup earnings and foreign exchange investors)

NEW YORK, April 18 (Reuters) - The dollar touched a seven-week high against the yen and pulled further away from a record low versus the euro on Friday after Citigroup earnings contained less damage from the crisis in credit markets than some had expected.

Problems in the U.S. financial sector have been triggered by weakness in the housing market and some analysts see further falls to come, but Citigroup's earnings have at least temporarily halted those fears and increased risk appetite, making the dollar more attractive.

Citigroup Inc C.N>, the largest U.S. bank, posted a quarterly loss of $5.1 billion, adding to losses in the previous quarter, and pre-tax write-downs of $6.0 billion. For more se [ID:nWNAS8367].

The figures showed financial institutions are continuing to suffer from the credit crunch, but Citi's writedowns were below some market expectations of up to $22 billion.

This extended the euro's earlier slide, helping push the euro zone single currency down more than a full cent against the dollar and well away from a record high near $1.60.

"Yen and Swiss franc are underperforming today, with equities higher in Europe and the market relieved that another large U.S. financial institution has reported its quarterly earnings and investors were relieved it was not uglier than it was," said Stephen Malyon, senior currency strategist at Scotia Capital in Toronto in a note to clients.

Citi's announcement drove the dollar 1.6 percent higher to 104.10 yen JPY=, earlier reaching its strongest level since late February at 140.43 yen. The dollar index was trading at 72.173 .DXY.

The euro fell as much as 2 cents against the dollar from its daily peak and last traded more than 0.8 percent down on the day at $1.5760, well away from a record peak of $1.5983 hit earlier in the week according to Reuters data.

The euro was also stung by a sharp climb in sterling on expectations of an imminent UK plan to aid the struggling mortgage market.

Hope that the plan may limit the extent of UK interest rate cuts pushed euro/sterling down 1 percent percent to 79.08 pence EURGBP=, away from this week's record high at 80.98 pence. Sterling also rose 0.1 percent to $1.9917 GBP=, just down from a two-week high touched in earlier trading.

EURO CONSOLIDATES

The euro has jumped 8 percent to the dollar so far this year on the view that European interest rates will stay put until later this year, while the U.S. Federal Reserve is seen cutting rates further from the current 2.25 percent.

This would help to keep euro zone rates significantly higher than U.S. ones, keeping the euro's yield appeal intact.

Still, given the euro's ferocious gains in the past few months -- the euro sailed through $1.50 only two months ago -- analysts said the market was taking a breather ahead of $1.60.

"The move from $1.50 to $1.59 has been almost unrelenting, so a consolidation is warranted in the short term," said Stephen Koukoulas, global strategist at TD Securities.

But he added that a push through $1.60 was only a matter of time, a view shared by many in the market.

Market participants said that euro selling would likely be short-lived, as ongoing inflation pressures will prompt the ECB to hold rates at 4 percent at least through autumn.

The inflation argument was bolstered by figures showing German producer prices in March increased 0.7 percent month-on-month and 4.2 percent for the year, above expectations. Earlier this week, euro zone inflation hit a record high.

"The main driver is interest rate differentials and it looks as though the ECB won't cut in the first half of the year," said Kikuko Takeda, senior currency economist at BTM-UFJ.

Analysts said that while U.S. bank earnings this quarter have not been as dreary as some had been expecting, figures showed that the credit crisis is far from over, which many believed would keep the U.S. currency under selling pressure. (Reporting by Nick Olivari; Editing by James Dalgleish)