Dollar eases in Asian trade as financial worries linger

The dollar reversed gains against the euro and yen in Asian trade Thursday as markets remained on edge for surprises in US banking earnings despite a rally on Wall Street, dealers said.

The dollar eased to 105.01 yen in Tokyo morning trade from 105.12 in New York late on Wednesday.

The euro firmed to 1.5839 dollars from 1.5821 but was flat at 166.31 yen.

"The dollar's overnight rally was limited as markets are cautious ahead of more banking results and have priced in that they will be negative," said Hideaki Inoue, chief forex manager at Mitsubishi UFJ Trust and Banking Corp.

Major US investment banks JPMorgan and Merrill Lynch are set to reveal their balance sheets later Thursday. Citigroup, which has been hit hard by the subprime loan crisis, reports earnings on Friday.

The greenback had firmed against other major currencies on Wednesday on falling oil prices and a surge in US shares triggered by a better-than-expected second quarter earnings reports by Wells Fargo and chip-maker Intel.

The US unit was also supported by speculation that the Federal Reserve may be forced to raise interest rates after a jump in consumer inflation.

"Inflation is currently too high," Fed chairman Ben Bernanke said in a second day of testimony to Congress, speaking after consumer prices rose 1.1 percent in June from May for an annual pace of 5.0 percent.

The monthly jump in the consumer price index was the sharpest since June 1982, while a 0.3 percent rise in core CPI excluding energy and food was the strongest since January.

Meanwhile the euro continued its downward trend against the dollar, falling from its all-time high reached earlier this week on mounting worries over a cooling European economy, dealers said.

"Currently, the overall European economy is doing better than the US economy, but there is no doubt that Europe will worsen. It's only a matter of time that markets will shift their focus to that," Inoue said.