Dollar steady

The dollar held steady against the euro and the yen on Tuesday as market players awaited a raft of US economic data this week for clues on whether the credit market turmoil of the past month has hurt economic growth.
The high-yielding Australian dollar jumped after data showing second-quarter growth exceeded expectations, suggesting the Reserve Bank of Australia may lift interest rates further.
But traders said the market remained wary of taking risky positions before reports on US factory activity later in the day, as well as the Federal Reserve's beige book report on economic conditions and monthly payrolls report later this week. The US Institute for Supply Management's index on manufacturing is seen slipping to 53.0 in August from 53.8 the previous month, indicating a steady pace of growth.
"The panic is almost over, but the market has lost its direction and is waiting for more news, especially any good news," said Kikuko Takeda, a currency strategist at Bank of Tokyo-Mitsubishi UFJ. "People know it will take some time to restore normal market conditions. There is no quick solution," she said.
Expectations have mounted for the Fed to cut interest rates this month and for the European Central Bank to keep rates on hold as fears about funds suffering losses from US subprime mortgages have caused a squeeze in money markets.
The credit and money market troubles have prompted the Fed and ECB to inject large amounts of cash into the banking system to help provide relief from the unusually tight conditions as financial firms have become reluctant to lend to each other.
Currency trading was expected to pick up as US investors return from Monday's Labour Day holiday. The dollar changed hands at 115.90 yen little different from late European trade on Monday. It has mostly held between 114 and 116 yen over the past week.
The Bank of Japan is also seen keeping interest rates on hold at 0.5 percent in the coming months, especially after a surprise decline in capital spending in the second quarter could result in an economic contraction for the April-June period.
Traders said the yen may hold steady as Japanese companies prepare to close their books on the first half of the financial year at the end of September.
"Japanese investors and companies are unlikely to start buying something fresh at this point, especially when their foreign asset holdings were hurt by the recent market turmoil," said a senior FX sales official at a US bank.
"If anything, they may be looking to unload their holdings, so the dollar and the euro are likely to be top-heavy against the yen through mid-September," he said. The euro was also steady at $1.3620 with traders expecting the single European currency to hover around $1.3600 on Tuesday. The euro drifted sideways near 157.85 yen
The dollar's trade-weighted index was little changed at 80.84 after having fallen to 80.44 on Friday, the weakest since early August when it hit a 15-year low of 79.957. The Australian dollar kept most of the gains made after the upbeat data, and was up 0.5 percent at around $0.8260.
The RBA holds a policy meeting on Tuesday at which it is expected to keep rates steady after raising them to a decade high of 6.5 percent last month. Any policy change will be announced on Wednesday. Investors are looking for the Fed to cut rates by at least 25 basis points from the current 5.25 percent at its September 18 policy meeting.
While ECB President Jean-Claude Trichet has sought to keep policy options open. The ECB last raised rates in June, to 4.0 from 3.75 percent, and was widely expected to tighten policy again this month until the flare-up of market volatility.