* Dollar’s selloff loses steam, dollar index off 7-mth lows
* Upbeat U.S. data help offset dovish Fed message
* Yen gets respite after sliding on Fed-inspired risk rally
By Masayuki Kitano and Ian Chua
SINGAPORE/SYDNEY, Sept 20 (Reuters) - The dollar held above a seven-month low against a basket of currencies on Friday after investors unwound some of the bearish trades put on in reaction to the Federal Reserve’s shock decision to maintain its massive bond-buying stimulus.
The dollar index eased 0.1 percent on the day to 80.333 , but stayed above a seven-month trough of 80.060 plumbed on Wednesday.
The dollar gained some support after a string of upbeat U.S. data on Thursday suggested that rising market rates, which had so concerned the Fed, were weighing only modestly on the economy.
U.S. data on Thursday showed U.S. home resales surged in August to a 6-1/2-year high and factories grew busier in the Mid-Atlantic region this month, underscoring recent signs of gathering economic momentum that’s likely to keep traders speculating about the timing of the Fed’s expected stimulus tapering.
The euro held steady at $1.3536, after having hit a 7-1/2 month high of $1.3569 on Thursday.
Against the yen, the dollar eased 0.2 percent to 99.23 yen . A trader for a Japanese bank in Singapore said there was talk of dollar-selling by Japanese exporters earlier on Friday.
The yen gained some respite after suffering a broad selloff on Thursday when risky assets rallied in the wake of the Fed’s surprise decision. Investors tend to sell the yen in favour of higher-yielding assets when risk appetite is strong.
The yen, however, still wasn’t far from troughs that had been hit on Thursday, including a three-month low versus the Australian dollar, a near four-year low against the euro and a 23-year trough versus the Swiss franc.
“Cross/yen pairs have risen on the back of (improved) risk appetite,” said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
Just how long such moves might last is unclear, given the possibility that the Fed could still start to taper its monetary stimulus within the next few months, Okagawa said.
“When we get close to the FOMC meeting in October and December, there will be debate over when they are going to do it and by how much,” he said, adding that such uncertainty could cause markets to fluctuate.
The euro eased 0.2 percent to about 134.34 yen. On Thursday, the euro had hit a high of 134.95 yen, its strongest level versus the yen since November 2009.
The Australian dollar slipped 0.2 percent versus the yen to 93.69 yen, down from Thursday’s three-month high of 94.45 yen.
The Swiss franc eased 0.2 percent to 108.96 yen. On Thursday, the Swiss franc had risen to 109.39 yen, its highest level versus the yen since 1990.
The Fed on Wednesday confounded many in the market by keeping its $85 billion monthly asset-buying programme and sounding super dovish. The market consensus had been for a modest cut of around $10 billion to the bond-buying stimulus.
The surprise decision sparked a rally in global equities and emerging market assets. It also led investors and analysts to push out the timing for when the Fed will begin scaling back stimulus.
“We now expect the Fed to start tapering in December 2013, to be completed in June 2014, with the first hike in June 2015,” analysts at Barclays Capital said.
On Sunday, the outcome of Germany’s general election will be closely watched. Chancellor Angela Merkel looks to secure a third term but there are doubts that she will be able to maintain her centre-right coalition, which could complicate her euro zone policy.