The dollar held firm near a three-week high against the yen on Monday as risk appetite grew after Tokyo shares followed Wall Street higher on hopes for a recovery in the U.S. economy later in the year.
The Nikkei share average rose 2.9 percent .N225 as Japan began trading for the year. U.S. stocks surged late last week with investors discounting gloomy economic data, including a sharp contraction in factory activity. .N
Hopes of a fresh economic stimulus package from U.S. President-elect Barack Obama, primarily designed to create 3 million jobs and resuscitate growth, were supporting the dollar, traders said.
But the dollar's recovery against the yen looked fragile and the greenback may not find clear direction until the U.S. jobs report due later this week which could revive worries about the economy, traders said.
"The market has become inured to bad economic news after having seen so much since late last year," said Minoru Shioiri, chief manager of forex trading at Mitsubishi UFJ Securities.
"Market players are still waiting to see if the dollar resumes its slide after the U.S. jobs data or if it will maintain its strength on hopes for U.S. President-elect Obama," said Shioiri.
The dollar rose 0.2 percent from late New York trade on Friday to 92.00 yen, near 92.41 yen struck late last week on trading platform EBS, its highest since mid-December.
The dollar plunged to near 87 yen in volatile trade last month, its lowest in more than 13 years, as the financial crisis prompted investors to avoid risk.
The euro edged up 0.1 percent to $1.3940 after falling about 0.2 percent earlier in trade. Against the yen, the euro climbed 0.3 percent to 128.20 yen, helping the single currency to rebound against the dollar.
A strong regional stock performance following the U.S. stock rise was also helping higher-yielding currencies like the Australian dollar. The Aussie rose 0.4 percent to $0.7142.
Tensions in the Middle East and a dispute between Russia and Ukraine over natural gas supplies stoked worries fuel supplies may be disrupted and pushed oil prices higher, but reaction in the currency market was muted, traders said.
