By Bradley Davis Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)-- The dollar gained against most of its competitors Monday, as investors took a defensive stance ahead of the start of second-quarter U.S. earnings, while casting a cautious eye toward the week's euro-zone debt auctions.
Some trepidation ahead of the July 23 release of the European bank stress tests results also kept investors from bidding the euro higher, said Dorothea Huttanus, currency analyst at DZ Bank AG in Frankfurt.
As investors anticipated those multiple events, it was "a perfect mixture to take a back seat" after the common currency bounced strongly off its $1.1876 low hit in early June, Huttanus said.
Barring the shock of a negative headline, Huttanus said light summer trade should keep the euro in a tight range against the dollar in the near term.
Monday morning, the euro was at $1.2579 from $1.2640. The dollar was at Y88.57 from Y88.65, while the euro was at Y111.42 from Y112.07. The U.K. pound was at $1.5043 from $1.5066. The dollar was at CHF1.0626 from CHF1.0559.
The ICE Dollar index, which tracks the greenback against a trade-weighted basket of currencies, was at 84.249 from 83.914.
The Japanese yen, meanwhile, staged a rebound after having earlier fallen on political uncertainty surrounding the ruling Democratic Party of Japan and its coalition partner the People's New Party, which together won only 44 of 121 seats contested at the Upper House elections on Sunday. The outcome was much fewer than the 56 seats the government needed to keep its majority in the house.
Investors believe the administration of Prime Minister Naoto Kan will now have a tough time passing bills, possibly spelling trouble for efforts to improve Japan's fiscal health. Another concern is that the government may not be able to move swiftly enough to ward off any further slowdown in Japan's recovery, particularly if global trade weakens significantly, dragging the country's export-driven economy down.
The yen declined against the dollar and euro in overnight trading, but had recovered by early New York trading.
"Political exchange rates have short legs," Huttanus said, noting a quick reshuffling of Japanese politicians would not take away from the yen's safe-haven role.
Keeping investors cautious in part was a scheduled debt auction for Greece, the epicenter of the euro-zone sovereign-debt crisis, which is set to sell EUR1.25 billion of 26-week treasury bills Tuesday. Portugal and Spain will also be auctioning government debt this week.
"Event risk may be on the market's mind as Europe has a lot of debt to float in the next week or so," keeping the euro under pressure, said TD Bank analysts in Toronto.
If the auctions go well, and if next week's bank stress tests satisfy investor appetite for assurance the debt crisis has not infected the region's banking system, the euro has room to appreciate to $1.30 over the next month, Huttanus said.
For now, "taking all these [worries] together, it's not a time for a euro rally within the next days," she said.
Canada Morning
The Canadian dollar is little changed Monday morning as the currency resists the selling pressure that pushed the euro and other risk-sensitive currency lower in early trading.
The currency put in a strong performance Friday after unexpectedly robust jobs data for June were released in early trading.
The U.S. dollar was at C$1.0330 Monday morning from C$1.0323 late Friday.
The U.S./Canadian dollar pair seems to be consolidating near the bottom of its recent trading range, said BMO Capital Markets. Any moves towards C$1.0250 and C$1.0200 are likely to find good initial support while the pair should encounter resistance around the C$1.0400 area, BMO said.
At 10:30 a.m. EDT (1430 GMT) the Bank of Canada will release its quarterly business outlook and senior loan officer surveys.
-By Bradley Davis, Dow Jones Newswires; 212-416-2654;
