* Fed debate on scaling back QE lifts U.S. dollar
* Euro hit by weak euro zone PMI data
* Euro tries to defend 50 pct retracement of Nov-Feb rally
* Yen likely to post first substantial weekly gain in 3
* Pound under pressure on BoE expectations
By Hideyuki Sano
TOKYO, Feb 22 The dollar bustled near a
5-1/2-month high against a basket of currencies on Friday, on
doubts over just how long the U.S. Federal Reserve will keep its
quantitative easing in place.
The dollar's gains came as the euro tumbled to a six-week
low against the dollar and a three-week trough against the yen,
on disappointing euro zone economic data and uncertainty ahead
of Italy's election at the weekend.
The dollar index, which measures its value against a basket
of six major currencies, rose past its Nov 16 peak to 81.508
on Thursday, its highest level since Sept. 5. It
last stood at 81.356 in early Asian trade.
Minutes of the Federal Reserve's last meeting released on
Wednesday and comments from the bank's two top officials on
Thursday showed growing debate within the bank about scaling
back its bond buying programme.
Concerns that the Fed may stop providing a flood of cash to
banks boosted the dollar, at expense of many other assets,
ranging from the euro and other risk currencies to stocks and
The euro fell to a six-week low of $1.31615 on Thursday and
last stood at $1.3190, flat from late U.S. levels.
Business activity indexes dealt a blow to hopes that the
euro zone might emerge from recession soon, showing the downturn
across the region's businesses unexpectedly worsened this month.
The data raised nervousness ahead of an influential German
Ifo business sentiment index due at 0900 GMT.
"After the euro's fall yesterday, we should be wary of risk
that weak Ifo figures cement concerns on the euro zone economy.
Given that the euro had been outperforming since late last year,
its correction could be large," said Junya Tanase, chief FX
strategist at JPMorgan Chase Bank.
In addition, concerns that a fragmented parliament after
Italy's national election could trigger a sell-off in the
peripheral euro zone bond market also weighed on the euro.
The currency is now trying to cling to an important chart
point of $1.3186, a 50 percent retracement of its 10.5-cent
rally from November to February.
Below that is another major support from its 90-day moving
average, at $1.3135, though a break there will leave it open for
a test of the Jan. 10 low of around $1.3040.
Against the yen, the euro fell to 122.25 yen, its
weakest level since late January. It traded at 123.05 yen in
early Asian trade, up slightly from late U.S. levels.
NO FOREIGN BOND BUYING
While the dollar gained across the board, the dollar failed
to advance against the yen with the Japanese currency's
three-month-old decline on monetary easing expectations is
showing signs of losing momentum.
The dollar stood flat in early Asian trade to fetch 93.26
yen, keeping some distance from its 33-month high of
94.47 hit last week.
"Judging from recent comments, most Japanese ministers don't
really wish to push the dollar/yen up beyond 95 yen. I suspect
if the yen weakens further, (Finance Minister Taro) Aso will try
to rein in the yen's fall," said Minori Uchida, chief strategist
at the Bank of Tokyo-Mitsubishi UFJ.
The yen looks set to post its first substantial weekly gain
since mid-November, when the announcement of a Japanese election
spurred investors to bet more political pressure would be put on
the Bank of Japan to take bold easing steps.
Speculators turned their gaze to British pound which has
fallen 1.7 percent so far this week, hitting a 2 1/2-year low of
$1.5130 on Thursday, on expectations of more quantitative easing
by the Bank of England.
Sterling has recovered a little to last trade at $1.5254
but it is still seen as vulnerable.
The Canadian dollar flirted with a seven-month low versus
the U.S. unit hit on Thursday, trading at C$1.0186 per U.S
dollar, near Thursday's low of C$1.0208.
The Australian dollar hit a four-month low of $1.0221 on
Thursday but recovered a bit in early Friday trade after Reserve
Bank of Australia chief Glenn Stevens did not include any fresh
signs of a rate cut in testimony to the Australian parliament's
It last fetched $1.0295, up 0.5 percent from late