Dollar gains as oil prices ease

NEW YORK, Aug 26 (Reuters) - The dollar firmed on Friday, supported by softer oil prices, after posting losses earlier in the session in thin summer trading, analysts said. U.S. oil futures fell more than $1 to $66.22 per barrel, as worries eased that Hurricane Katrina was not expected to significantly affect offshore crude production in the Gulf of Mexico. High oil prices have hurt the dollar in the past, given that the United States is the world's largest crude importer. Late in New York trade, the euro was down 0.1 percent at $1.2283, failing to hold intra-day highs around $1.2342, according to Reuters data. "Looks like receding oil prices are helping the dollar and also earlier in the trading session, the dollar successfully held above its intra-day low against the euro," said Alex Beuzelin, senior market analyst at Ruesch International in Washington DC. "That has set the stage for the dollar's short-term rebound. But I don't see this as anything more than continued range trading," he added. Against the Japanese yen, the dollar rose slightly to 110.15 yen, and rallied 0.1 percent against the Swiss franc to 1.2590 francs. Sterling also slipped 0.1 percent against the dollar to $1.8005. An unexpected fall in U.S. consumer sentiment for August and remarks from Federal Reserve Chairman Alan Greenspan on Friday did not have a strong impact on the dollar, traders said. Still, amid thin and listless trading conditions, Greenspan's remarks had been enough to keep the dollar on the defensive earlier. Greenspan said the Fed will pay increasing attention to asset price shifts since global economic activity was being influenced by capital gains on various types of assets and on the debt that sustains them. In prepared remarks for a speech in Jackson Hole, Wyoming, Greenspan indicated that the housing market is an increasingly important factor in Fed policy decisions. "Our forecasts and our policy are becoming increasingly driven by asset price changes," the Fed chief said.

This may be a reference to house prices, which many analysts say are reaching bubble proportions and suggest the Fed will continue raising rates. But balanced against concerns over what recent U.S. data and record oil prices say about the economy going forward, the dollar is not getting much support. "Greenspan appears to argue that whether the U.S. housing bubble ends with a hard or a soft landing depends near term upon the Fed's success in applying Greenspan's new risk management approach -- the Greenspan Put," said Michael Woolfolk, senior currency strategist at Bank of New York. "The higher interest rates go now, the more room the Fed will have cut rates when housing prices correct," he added. Indeed, dealers may be looking ahead as to when the Fed might end its tightening cycle. Currency analysts at UBS reckon the market is waiting "to see when the Fed will start signaling if it is close to the end of its cycle or not." But despite the dollar's weak tone on Friday, it is still within recent trading ranges, albeit at the lower end. John McCarthy, head of trading at ING in New York, sees the euro struggling to break above $1.2350, while dollar/yen will trade within 50 pips on either side of 109.50 yen. "The yen is the one thing that might get things going a bit," he said.