Dollar flat against euro in Asia

The dollar was steady against the euro in Asian trade on Monday as traders weighed prospects for higher interest rates in the eurozone ahead of a key European Central Bank policy meeting, dealers said.

They said that while markets expect the ECB to raise rates on Thursday to try to contain inflation, there are doubts about whether it will be the start of a series of rate rises given concerns about slowing economic growth.

The dollar regained some of last week's losses against the Japanese currency, firming to 106.40 yen in Tokyo morning trade from 106.11 in New York late Friday.

The euro was unchanged at 1.5790 dollars but edged up to 168.05 yen from 167.22.

Traders have already priced in a 25-basis-point interest rate hike by the European Central Bank on Thursday to 4.25 in response to simmering inflation.

Markets will be looking for clues from ECB chief Jean-Claude Trichet on the future direction of rates in the 15-member eurozone, with the rate rise expected to be a one-off for now as the economy loses steam, dealers said.

"The dollar's weakness was limited by receding expectations of a series of rate hikes in Europe amid uncertainty over the economic outlook," said Yuya Koike, forex strategist at Hachijuni Bank.

The interest rate gap between the eurozone and the United States -- where the Federal Reserve's key rate is at 2.0 percent -- has weighed on the dollar, which has also been weakened by lacklustre US economic growth.`

The dollar was pressured by Friday's sell-off on Wall Street amid fresh jitters over the economic outlook, as oil prices shot above 142 dollars a barrel.

The market is also skittish ahead of Friday's monthly labour market report for June in the United States, particularly after a much bigger-than-expected jump in the unemployment rate in May to 5.5 percent.

But the US currency's fall has been curbed by speculation that Washington may take steps to try to bolster the greenback, either by trying to talk up the currency or perhaps even with market intervention, dealers said.

"There are expectations that (US officials) may need to do something to support the dollar as the economic outlook is worrying," said Koike.

He said US authorities were expected to reiterate support for a stronger dollar, while intervention to buy the US currency -- while possible -- would require cooperation from European nations to be effective.