* Dollar gains despite wariness over possible U.S. gov't
* Euro hurt by Italy's renewed political tensions
* Barclays expects dollar to trade sideways with downward
bias near term
* Yen drops on Japan corporate tax-cut hopes
By Julie Haviv
NEW YORK, Sept 26 The dollar gained broadly on
Thursday, recouping losses from the previous session, after
stronger-than-expected U.S. weekly jobless claims data favored
the view that the Federal Reserve will wind-down is stimulus
program this year.
The dollar's upside, however, could be limited in the near
term as worries about a potential U.S. government shutdown and
the possibility of a debt default are keeping investors
Republican lawmakers in the U.S. House of Representatives
refused to give in to President Barack Obama's demands for
straightforward bills to keep the government running beyond
House Republicans also challenged Obama on the debt ceiling
increase, the amount the government is allowed to borrow, which
the Treasury Department has said is urgently needed by Oct. 17.
In late afternoon trading, the dollar was up 0.3
percent against a basket of currencies at 80.554, above a
seven-month trough of 80.06 hit on Sept. 18.
The dollar was buoyed by weekly data showing the level of
initial U.S. jobless claims came in much better than expected,
with a fall to a near six-year low, suggesting a steadily
improving labor market.
The reading gave a clearer view of the labor market after
the number of claims earlier in September may have been
distorted as two states updated their computer systems.
"Surprise improvement in America's job market pulled the
dollar higher and revived market bets on a Fed taper at a coming
meeting," said Joe Manimbo, senior market analyst at Western
Union Business Solutions in Washington.
The data was particularly encouraging ahead of next week's
nonfarm payrolls report for September, he said.
"A better pace of monthly hiring, if realized, would
strengthen the case for the Fed to slow stimulus at its next
meeting on Oct. 29-30, and ease a big burden on the dollar," he
The greenback on Thursday was also helped by the euro's fall
amid renewed political uncertainty in Italy, the bloc's
Italian center-right deputies supporting former Prime
Minister Silvio Berlusconi renewed threats to resign if their
leader is expelled from Parliament following a tax fraud
The euro last traded down 0.3 percent at $1.3484.
The dollar earlier rose as high as 99.13 yen on a media
report that Japan's government plans to say it will "urgently
consider" cutting the corporate tax rate when it compiles a
stimulus package next week.
A government source told Reuters last week that Japan will
consider cutting corporate taxes and ending a temporary tax hike
earlier than scheduled, to cushion the economy from a scheduled
sales tax increase.
That would add up to more stimulus than previously expected
for the economy, which is negative for the yen, helping push
Japan's benchmark Nikkei stock index higher.
Against the yen, the dollar was last up 0.4 percent at 98.84
yen, according to Reuters data.
The dollar has struggled since the Fed stunned markets last
week by deciding not to scale back its massive stimulus program
for the time being, which has raised the question of whether
markets have been too optimistic on the state of the U.S.
In another criticism about how the Fed handled the decision,
Fed Governor Jeremy Stein said the Fed - the U.S. central bank -
should make itself more predictable about scaling back its
stimulus campaign. He maintained the Fed had confused markets by
not tapering at its meeting last week.
Stein said he would have been comfortable starting to reduce
asset purchases at the Sept. 17-18 meeting, and that the
decision to keep buying at an $85 billion monthly pace had been,
for him, a "close call."
"The Fed's decision to postpone tapering delays, but does
not derail, our constructive dollar outlook," Barclays Capital
said in a report.
Barclays expects the delays to add $250 billion to the Fed's
balance sheet and as a result, the bank expects the dollar to
trade sideways with a downward bias in the near term.
Emerging market currencies have fared well from the Fed's
bond-buying as investors have plowed cash into higher-yielding
"For the first time in months, we think it is time to take
profits on our short emerging market carry positions held since
the start of the year," Barclays said.
The bank believes a broad-based dollar rally against the
major currencies, including the euro, will have to wait until
the Fed begins to taper, which the bank expects in December, or
until growth trends in the United States and euro zone