Dollar firms on inflation worries

The dollar climbed further in Asian trade on Thursday on speculation that the US Federal Reserve will refrain from cutting interest rates again due to inflation worries, dealers said.

The dollar gained to 105.47 yen in Tokyo morning trade from 105.14 in New York late on Wednesday.

The euro dropped to 1.5390 dollars from 1.5440 and to 162.44 yen from 162.38.

The greenback was supported by growing expectations that US interest rates have bottomed, following fresh remarks from Federal Reserve chairman Ben Bernanke expressing concern about inflation, dealers said.

Bernanke said in a speech Wednesday that the record surge in energy costs has created "significant challenges" for the US and world economy although the situation is far different than the oil crisis of the 1970s.

The remarks came a day after Bernanke said a weaker greenback was adding to US inflation pressures, in an rare comment by the Fed chief on currencies.

The Fed next meets on June 24-25 when it is expected to keep rates on hold, having already slashed borrowing costs to 2.00 percent from 5.25 percent.

"In addition to Bernanke's comments, the market got relief from economic indicators," said Marito Ueda, a currency dealer at FX Prime.

An index of the US service sector by the Institute of Supply Management eased to 51.7 in May from 52.0 in April, but remained in the growth mode above 50 percent, suggesting a resilient economy.

Washington also revised up to 2.6 percent the gains in first-quarter US labour productivity from an earlier estimate of 2.2 percent.

The market is now anxious to see Friday's key monthly US payroll report.

"If the figure turns out to be better than market expectations, the dollar may rise further to above the 105.50 yen level," said Ueda.

The European Central Bank and the Bank of England meet on Thursday, when they are expected to leave interest rates unchanged at 4.0 percent and 5.0 percent respectively.