* Euro gains as German ZEW at highest since April 2010
* Rise limited as focus centers on U.S. Fed meeting
* Markets expect any Fed tapering of stimulus to be modest
NEW YORK, Sept 17 The euro rose against the
dollar on Tuesday after a better-than-expected reading in a
German sentiment survey, but gains were muted ahead of a U.S.
Federal Reserve meeting expected to result in a tapering of its
massive stimulus program.
The ZEW think-tank's poll of economic sentiment rose to its
highest level since April 2010, suggesting a growing sense of
financial well-being that could support German Chancellor Angela
Merkel's chances of winning a third term in Sunday's elections.
The euro's gains, however, were limited with traders
reluctant to make fresh bets before the Fed's two-day policy
meeting, which begins later on Tuesday. A recent Reuters poll
showed economists expect the Fed to reduce its monthly asset
purchases by a relatively modest $10 billion.
"The euro's slightly resilient tone is a result of ZEW and
the uncertainty surrounding the Fed tomorrow," said Omer Esiner,
chief market analyst at Commonwealth Foreign Exchange in
Washington. "We are probably on hold until the Fed with the risk
to the dollar being the statement if they taper as expected, but
try to anchor expectations that rates will remain low."
Analysts say rate hike expectations hold the key for the
dollar because of their impact on short-term U.S. bond yields.
The dollar retreated on Monday after former Treasury
Secretary Lawrence Summers withdrew his name from the list of
candidates to lead the Federal Reserve, reducing the chances of
a rapid cut in monetary stimulus.
The euro last traded up 0.1 percent at $1.3350,
nearing a peak of $1.3385 hit on Monday, its highest since late
The dollar edged down 0.1 percent against a basket of
currencies at 81.191, though it still held above a
four-week low of 80.968 set on Monday.
Against the Japanese yen, the dollar was last up 0.2
percent at 99.27 yen, but was expected to stay below chart
resistance around 100 yen.
The dollar briefly pared gains against the yen after a
report showed U.S. consumer prices barely rose in August, which
eases the way for the Fed to start trimming its bond purchases.
A separate report showed foreign investors rediscovered a
taste for long-term U.S. securities in July as Japan and China
increased holdings of U.S. government bonds, which had suffered
a record outflow in June.
According to Treasury data released on Tuesday, foreign
holdings of long-term U.S. securities increased by $31.1 billion
in July after plunging by $67 billion the prior month.