Dollar up before US data, but investors cautious

The dollar strengthened on Thursday but was seen treading familiar ranges on caution ahead of a slew of data that should shed light on Hurricane Katrina's damage to the US economy.
Trading was also kept in check by uncertainty about whether the Federal Reserve would raise interest rates or pause its 14-month credit tightening cycle at its policy meeting on Tuesday, traders said.
For now the dollar was seen well-supported in the medium term against the yen due to strong demand from Japanese institutional and retail investors.
"There are more buying needs for the dollar than selling, which puts it on course for a further rise," said Mitsuru Sahara, senior trader at UFJ Bank.
Figures from Japan's Finance Ministry on Thursday reflected that investment impact on the yen.
Despite foreign investors buying a net 686.7 billion yen ($6.22 billion) of Japanese shares last week, the second-biggest amount in the past 18 months, it was more than offset by Japan's net 696.9 billion yen of foreign bond purchases.
Overseas investors have stuffed about $39 billion into Tokyo stocks over the past two months and helped drive the Nikkei to four-year highs, but Japanese funds have bought almost the same amount of bonds from abroad. UFJ's Sahara said the market seemed to have formed a consensus that the Fed would raise rates next week, as the extent of Katrina's damage appeared less serious than initially thought.
Oil prices easing from record highs and expectations that post-Katrina reconstruction would stimulate economic activity had also helped the dollar, he said.
The dollar bought 110.50 yen, slightly up from around 110.40 yen late in US trade. It has been mostly stuck between 109 yen and 111 yen over the past month.
The euro hit at a two-week low around $1.2210 before recovering to $1.2220, down 0.5 percent from $1.2285 marked in late US trade. The single currency has shed 3 percent from a three-month high of $1.2590 hit in early September.
Selling of the euro accelerated after it fell below a key support around $1.2250. It also weakened to 135.10 yen from 135.60 yen.
The euro has come under pressure this week as the parties competing in Germany's election on Sunday were in a dead heat, raising the possibility of a grand coalition between conservatives and socialists that could stymie reforms.