Dollar slips in c.bank reserve shuffle, euro jumps

LONDON, May 29 (Reuters) The dollar weakened on Tuesday, with analysts attributing the move to emerging market central banks selling the greenback for other currencies -- notably the euro -- in routine foreign exchange reserve management.

The euro's broad strength took it to a record high against the low-yielding yen.

Far Eastern central banks sold dollars for euros, a trend later followed by eastern European central banks and New York trading desks, analysts said.

European Central Bank policymaker comments on Tuesday also supported the single currency along with strong euro area current account data, further cementing expectations for interest rates to move above 3.75 percent.

''It's talk of central bank rebalancing from the dollar into other assets. The market's got the bit between its teeth,'' said Adam Cole, senior currency strategist at RBC Capital Markets.

Adarsh Sinha, currency strategist at Barclays Capital, noted the dollar's good run in recent weeks, taking it to three-month highs against the yen and seven-week highs against the euro.

''You could argue that these levels are good ones at which to sell the dollar,'' he said.

At 1200 GMT, the euro was up 0.45 percent on the day at $1.3510, and the euro was up 0.35 percent at 164.27 yen, a new record high, according to Reuters data and up sharply from around 163.15 yen earlier in London trading.

The dollar fell 0.1 percent versus the yen to 121.48 yen, back from 121.88 yen hit last Friday, its highest point since mid-February.

Sterling was up 0.1 percent at $1.9864, having traded as high as $1.9899, while euro/sterling jumped 0.3 percent to 68.00 pence.

HAWKISH ECB SPEAK ECB Governing Council member Axel Weber told the Financial Times the bank was prepared to shift to restrictive monetary policy if needed to keep inflation in check.

ECB Executive Board member Juergen Stark said the bank was on high alert over inflation and ready to respond as required given strong money growth and high capacity utilisation.

March investment into the euro zone came in stronger than expected. The current account was in surplus by 8.8 billion euros, stronger than the Reuters poll forecast of 5.0 billion.

''On an annual basis, the broad basic balance recorded the largest surplus in several years, and hence net inflows are still underpinning a strong euro,'' Danske Markets strategists said in a note to clients.

Earlier on Tuesday, data showed Japan's unemployment rate fell to 3.8 percent in April, while household spending rose 1.1 percent from a year ago, far outstripping a market forecast for a 0.2 percent gain and underscoring a steady economic recovery.

The Canadian dollar was off its highest level against the U.S. dollar in nearly 30 years ahead of a Bank of Canada rate decision on Tuesday.

Canada's central bank is expected to interest rates at 4.25 percent, but traders will scrutinise its accompanying statement for hints on how aggressively it will try to head off inflation.

A slew of U.S. data is due this week, culminating in Friday's May employment report, which may revive receding expectations of a Federal Reserve interest rate cut.

Investors will scrutinise the minutes of the Fed's last rate-setting meeting due on Wednesday, before the release of the second estimate of first-quarter growth data on Thursday.

REUTERS MP HT1909