Dollar keeps gains made on Bernanke comments

TOKYO, June 6 (Reuters) The dollar held on to gains on Tuesday after traders took Federal Reserve Chairman Ben Bernanke's pledge to keep an eye on inflation risks as a sign that U.S. interest rates would keep climbing.

Speaking at an international monetary conference in Washington on Monday, Bernanke suggested he was concerned about core inflation and the possibility that it could pierce the upper end of the range he views as consistent with price stability.

This helped to boost expectations that the Fed will raise rates for the 17th straight time to 5.25 percent later this month. In the wake of weak jobs data on Friday, the market had started to lean towards the possibility of a pause in rate rises.

Some traders said that investors remained keen to sell the dollar, and that prospects for a rate rise alone would not be enough to fuel a further recovery.

''Bernanke's comments may have triggered some short covering ... but a rise in the dollar/yen to 113 yen is going to be pretty tricky,'' said Nobuaki Kubo, forex planning manager at Resona Bank.

Traders jumped at the chance to cover more of the short positions that had piled up during the dollar's 9 percent plunge against the euro to a one-year low and 5 percent fall versus the yen to an eight-month trough this year.

In early Tokyo trade, the dollar was little changed at 112.25 yen after gaining nearly half a percent on Bernanke's comments.

Traders said that institutional investors such as Japanese exporters had lined up orders to sell the dollar around 113 yen, making that level a difficult hurdle.

The dollar was at 1.2900 per euro, down slightly from the level in late U.S. trade but keeping most of the gains made after recovering from a slide to 1.2980 on Monday -- its lowest level since May 2005.

The single European currency was little changed at 144.85 yen after rising to a six-week high of 144.99 yen earlier in Tokyo trade.

Reuters SK VP0635