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Written by: Staff

TOKYO, Apr 21 (Reuters) The dollar steadied on Friday after upbeat economic figures helped the currency recover from a battering on expectations that U.S. interest rates will soon stop rising.

The U.S. currency rose more than half a percent against the euro and the pound on Thursday, rebounding from seven-month lows as investors pared bets against the dollar on a view that the selling had been overdone, traders said But the market was cautious about pushing the dollar too high after the Federal Reserve signaled this week that its campaign of raising short-term rates may be nearly over, while the European Central Bank is seen raising rates at upcoming policy meetings.

''We are going to be nervous after the May Fed meeting because we are not sure what's going to come next,'' said the chief trader at a European investment bank in Tokyo.

The Fed is widely expected to raise rates to 5 percent at its next policy meeting in May and then take a break from its two-year run of credit tightening that helped push the dollar up 15 percent against the euro and the yen last year.

With the market in consolidation mode and no major data due until next week, the dollar would likely move in tight ranges during Tokyo trade, dealers said.

The dollar benefited from a key U.S. regional business survey that showed an improvement in factory activity and from a drop in weekly jobless claims.

In early trade, the euro was down slightly at $1.2305 off the seven-month high of $1.2395 touched on Wednesday.

The dollar inched up to around 117.65 yen It was seen pinned by Japanese exporters' desire to sell the U.S. currency above 118 yen and importers' intention to buy just below 117 yen.

Sterling was little changed at $1.7790 well off the seven-month peak of $1.7937 after a bruising from weaker-than-expected British inflation figures.

The single European currency was also flat at 144.80 yen off the record high of 145.51 yen marked in the previous session.

Traders said that the yen, seen as a proxy currency for the Chinese yuan, was bought in cross trades after Chinese President Hu Jintao gave President George W. Bush a general assurance he was working to make the yuan more ''flexible''.

Still, Hu's gesture fell short of U.S. demands for a dramatic revaluation of the yuan as a way to reduce the trade imbalance with China.


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