* Dollar at lowest level of the year vs currency basket
* European shares dip after near 7 pct rise in 2 weeks
* China's central bank stirs anxiety
* Fed meeting minutes awaited
By Marc Jones
LONDON, Feb 19 The dollar was hovering at its
lowest level of the year on Wednesday as investors waited to see
if Federal Reserve policymakers had foreseen this month's
relatively weak U.S. economic data at their latest meeting.
Recent surveys from jobs and house building to confidence
and manufacturing have left financial markets wondering whether
the Fed might consider tweaking its stimulus withdrawal plans if
the economic picture were to deteriorate.
Wall Street was expected to open in a cautious mood with the
minutes from the Fed's late January meeting set to dominate
alongside another splurge of data expected to show the economy
still feeling the recent cold snap.
Futures prices pointed to the main S&P 500 and Dow
Jones Industrial indexes starting down 0.3 and 0.1
But it was the recent weakness of the dollar that
remained the central theme after it slipped to its lowest level
of 2014 overnight.
"There is still this assumption that much of this bad data
is due to the weather," said Philip Marey, a U.S. focused
economist at Rabobank.
"But if it turns out not to be the case and the trend
continues once the winter is over, then the Fed will have a good
reason to slow tapering."
Hesitant share investors took a step back on Wednesday, also
worried about interest rates in China and the extent of its
European shares were off 0.3 percent, only their
fifth session of the month in negative territory, while
risk-wary investors nudged U.S. and German government bonds
yields down to 2.687 and 1.643 percent respectively.
With the dollar in the doldrums, the euro was
comfortable at $1.3745, having stretched as far as
$1.3769 overnight, its highest in seven weeks and breaching a
key resistance barrier at $1.3740.
"The euro strength over the last few days has been more of a
process of elimination rather than fundamental euro area
strength," said Alvin Tan, an FX strategist at Societe Generale
"The U.S. data has been weak over the last couple of weeks
and the UK inflation number yesterday helped kick euro-sterling
Dealers have been surprised by the euro's resilience given
speculation the European Central Bank would have to ease policy
further to avert the risk of deflation.
"One could expect that if the real economy is getting up and
if we see that in Germany wage increases are quite substantial,
there might be a certain self-correcting trend (in inflation),"
ECB member Ewald Nowotny told Reuters in an interview.
"So we will see whether this needs some specific action or
whether ... there would be a merit for waiting."
In Asia, Japan's Nikkei pared its early losses to
end off 0.5 percent, battling to maintain the momentum of
Tuesday's 3 percent rally which followed a decision by the Bank
of Japan to expand a scheme to encourage more bank lending.
The emerging markets focus remained on rising unrest in both
Ukraine and Thailand. Ukraine's sovereign bonds and
currency both tumbled as a renewed wave of violence hit the
capital Kiev, adding pressure on Russia's rouble which has hit
an all-time low against the euro.
The rouble's weakness stemmed mainly from the
finance ministry's plan to buy foreign currency to replenish one
of its sovereign wealth funds. Moscow shares also fell
Dealers also kept a careful eye on China's central bank
after it drained funds from the money market on Tuesday, though
it took no new action on Wednesday which helped the Shanghai
market bounce by 1.1 percent.
The People's Bank of China (PBOC) is trying to engineer a
gradual upward shift in the cost of money to encourage companies
to deleverage and discourage high-risk shadow banking activity,
though investors are anxious it could hurt growth.
More below-forecast data on U.S. housing on Wednesday added
to the case for the Federal Reserve to be patient in reducing
Later on Wednesday, the Fed will release minutes of its
January policy meeting when it decided to trim its monthly asset
buying by another $10 billion.
Fed Chair Janet Yellen has since indicated that the central
bank was still inclined to keep tapering, though markets assume
the run of soft data will encourage caution in its efforts.
In commodity markets, gold slipped to $1,320 an ounce after
running into selling at a 3-1/2-month peak of $1,331.10.
U.S. crude rose to a fresh four-month high on forecasts of
lower crude and oil products stockpiles due to new pipeline
capacity and robust winter demand.
Nymex crude futures were 78 cents higher at $103.19,
having jumped 2.4 percent on Tuesday, while Brent crude
edged down 10 cents to $110.37 a barrel.