Dollar stuck near record low vs euro

TOKYO, Apr 30 (Reuters) The dollar was stuck near a record low against the euro on Monday, getting little reprieve from a steady three-month slide on expectations for the Federal Reserve to cut interest rates later in the year.

Trade in Asia was subdued, with Japanese financial markets closed for the first of a string of Golden Week holidays on Monday. Many markets in Asia and Europe will be shut for holidays on Tuesday.

The euro recovered from an initial dip, especially against the yen, after China's central bank on Sunday boosted the amount of reserves banks are required to set aside, the seventh such increase since June 2006.

Traders covered short positions in the yen in case investors cut back on risky assets after the move by Beijing.

But the reaction was muted, with the Shanghai Composite rising more than 1 percent even as other equity markets retreated.

Analysts said market players may seek to take profits on the run-up in stocks and higher-yielding currencies in the past few weeks, with trade potentially more volatile during the holiday-filled week.

''We are cautious of the risk of a market correction amid over-bought positions, despite Asia's healthy fundamentals,'' said Shahab Jalinoos, a currency strategist at ABN AMRO in Singapore.

The dollar slipped slightly to 119.50 yen from 119.60 yen in late New York trade.

The euro was little changed at $1.3647 after climbing to $1.3682 on electronic trading platform EBS on Friday, the highest since its 1999 launch.

The euro edged down to 163.05 yen but rebounded from an intraday trough near 162.50 yen and held near Friday's record high of 163.29 yen.

The yuan strengthened to 7.7038 per dollar hitting a new peak since the July 2005 revaluation.

But traders said they were cautious about how much China would allow the tightly managed yuan to appreciate as a means of cooling red-hot exports, a main driver of China's rapid growth.

EURO STANDS TALL With global growth robust even as the U.S. economy weakens, investors have shifted funds out of the dollar and into currencies where yields are high or expected to rise further such as the euro, sterling and Australian dollar.

Data on Friday showing U.S. economic growth slowed to a 1.3 percent annual pace in the first quarter, the weakest in four years, underscored expectations that the Fed will likely need to cut rates from the current 5.25 percent later in the year.

''Looking at euro/dollar and euro/yen, it seems people want to keep taking these higher,'' said Luke Waddington, head of FX trading at Royal Bank of Scotland in Tokyo. ''I don't see any reason why they shouldn't stay firm for the time being.'' The yen, which has suffered even more than the dollar from Japan's very low rates, also got a slight boost as some market players unwound carry trades in which they borrow in the yen to fund purchases of higher-yielding currencies or risky assets.

The Bank of Japan downgraded on Friday its forecast of core inflation to just a 0.1 percent rise in the fiscal year that began this month in its twice-yearly outlook report and also kept overnight rates on hold at 0.5 percent.

But BOJ Governor Toshihiko Fukui warned that the central bank could still raise rates despite tepid inflation as long as the long-term outlook for growth and prices is robust.

A Reuters poll of 52 analysts, traders and portfolio managers in Tokyo's markets found 27 expect the BOJ to next raise rates to 0.75 percent in the July-September quarter, with 28 seeing another increase coming in the first quarter of 2008.

REUTERS PV VP1135