* Dollar near eight-month low on ongoing U.S. government
* Dollar bounces from 1-1/2-year low versus Swiss franc
* Prolonged U.S. government closure could postpone Fed
* Euro falls from eight-month high, minor setbacks seen
By Julie Haviv
NEW YORK, Oct 4 The dollar rose against a basket
of major currencies on Friday after five straight sessions of
losses but remained within striking distance of an eight-month
low hit the previous day, as the U.S. government closure
The shutdown of the U.S. government appeared likely to drag
on for another week and possibly longer as lawmakers consumed
day three of the shutdown on Thursday with a stalling game, and
with no end in sight until the next crisis hits Washington
around Oct. 17.
Oct. 17 is the date Congress must raise the nation's
borrowing authority or risk default, and members of Congress now
expect it to be the flashpoint for a larger clash over the U.S.
budget as well as President Barack Obama's healthcare law.
The U.S. dollar index, which tracks the greenback against
six major currencies, last traded up 0.3 percent at 79.994, but
not far from Thursday's eight-month low of 79.627. The euro,
which traded weaker, dominates the composition of the index.
The greenback's gains were pronounced against the Swiss
franc, rebounding from a 1-1/2 year low reached the previous
day. The Swissie was weighed by news that Switzerland's
financial markets regulator is investigating several Swiss banks
in connection with the possible manipulation of foreign exchange
"So far markets have mostly treated (the government
shutdown) as a U.S.-centric growth shock from fiscal/confidence
effects, rather than as a tail-risk shock to market risk," said
Dan Dorrow, foreign exchange strategist at Faros Trading.
"The present state of things is emerging market
risk-positive as it keeps hyper-accommodative Federal Reserve
stimulating flows into emerging markets," he said.
The euro fell 0.3 percent to $1.3584, but not far
from a peak of $1.3645 reached on Thursday, which marked its
highest since February. It has risen nearly 0.5 percent on the
dollar so far this week.
Analysts predicted minor setbacks and some consolidation for
the euro going into the weekend after its recent ascent. Real
money accounts were cited as main sellers of the pair taking it
below the $1.3600 mark.
"No one wants to touch the dollar while we have
uncertainties regarding the U.S. government shutdown. We also
had a disappointing service sector number and that also added to
the negative dollar sentiment," said Niels Christensen, FX
strategist at Nordea.
The government shutdown has led the U.S. Labor Department to
delay the employment report for September, which was scheduled
for Friday. No new date was set for the release of the data.
Thus, any confirmation of an improving labour market that
the Federal Reserve wants to see before cutting its stimulus
will likely be delayed, hurting the dollar. Two senior Fed
officials said monetary policy was being kept easier to help
offset the harm caused by political fighting.
"Those who have been expecting (Fed tapering) in October
should be having a bit of panic now. Those who have bet on
December may be worried too," said Katsunori Kitakura, associate
manager of market making at Sumitomo Mitsui Trust Bank.
Meanwhile, the resolution of Italy's latest political
crisis, the European Central Bank refraining from any immediate
policy action to help the economy, and this week's data all
supported the euro this week.
But Sara Yates, global currency strategist at JPMorgan
Private Bank said the prospect of the Fed eventually trimming
its bond purchase program could push benchmark U.S. 10-year
Treasury yields to 3.0 percent or higher next year
and support the dollar.
At the same time "sentiment towards Europe will likely
improve but the ECB will stand ready to ease policy to stop
financial conditions from tightening too much," she said, adding
in such a case the euro could target the $1.28 mark.
The dollar was down 0.1 percent against the yen at 97.14
yen after the Bank of Japan kept rates on hold as was