FOREX-Dollar, yen rise as markets await US bank bailout

* Dollar, yen up on uncertainty ahead of U.S. bank plan

* Euro hurt on report of Russia debt deal

* Geithner set to unveil bank plan outline at 1600 GMT (Updates prices, adds quotes, changes byline, dateline; previous LONDON)

NEW YORK, Feb 10 (Reuters) - The dollar and yen firmed on Tuesday as investors turned cautious ahead of the U.S. government’s announcement of a widely anticipated plan to shore up its beleaguered banking sector.

Market participants were worried the bank rescue package, aimed at helping banks off-load their “toxic assets” and boost capital, may not be enough to ease the impact of the credit crisis. They were generally wary of making large bets before the outlines of the U.S. plan are unveiled by Treasury Secretary Timothy Geithner at 11 a.m. (1600 GMT).

The Obama administration is also waiting for Congress to work out an $800 billion-plus economic stimulus package, although a major hurdle was cleared in the Senate on Monday.

“Investors are very skittish and we’re waiting to see how financial markets react to the U.S. bailout plan and that’s why we’re seeing bids in the yen and the dollar against the euro,” said Boris Schlossberg, director of GFT Forex in New York.

The low-yielding dollar and yen are typically viewed as safe-haven currencies with low volatility. When stocks drop and the risk barometer shoots up, investors repatriate funds and close out losing risky trades funded by these two currencies.

In early New York trading, the euro was down 0.3 percent at $1.2971, after falling as low as $1.2811 EUR=, according to Reuters data.

Three sources told Reuters the bank rescue package included a public-private partnership that could buy up to $500 billion worth of distressed assets, with private investors able to buy bad assets through low-cost funding from the Fed or using Federal Deposit Insurance Corp guarantees. [ID:nWEN4160]

The euro also has been undermined by conflicting reports that Russian banks were seeking government help to restructure their foreign corporate debt.


Yen strength pulled the dollar down 0.4 percent at 91.15 JPY=, while the euro fell 0.7 percent to 118.24 yen EURJPY=.

The yen had gained earlier after Japan’s Finance Minister Shoichi Nakagawa told Reuters that Japan would act decisively against excessive forex moves. [nTKF004300].

The dollar was also higher against the Australian and New Zealand dollars, up around 2 percent AUD= and 0.9 percent NZD=, respectively.

Markets are also awaiting Federal Reserve Chairman Ben Bernanke, who will testify before the House Financial Services Committee later on Tuesday on the Fed’s effort to boost market liquidity.

Analysts will look for comments from Bernanke on how the Fed could seek to lower mortgage rates including those that would suggest the Fed is moving closer to purchasing long-dated Treasuries.

Earlier, the euro had slipped after Japan’s Nikkei business daily quoted Anatoly Aksakov, president of the Russian Association of Regional Banks, as saying the industry group had submitted a proposal to the Russian government to postpone loan repayments of up to $400 billion in corporate debt owed to foreign banks. [ID:nT350610]

But Russia was quick to play down the report. Aksakov told Reuters the Nikkei report was untrue. [ID:nLA444333]

“Broad concerns about Russia and emerging European countries will continue to weigh heavily on the euro because of European banks’ exposure to those regions,” said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ

Additional reporting by Veronica Brown in London; Editing by Chizu Nomiyama