Tokyo, July 30 - The dollar held steady near a one-month high against a basket of currencies on Wednesday after jumping on a sharp drop in oil prices and an unexpected rise in U.S. consumer confidence.
U.S. stocks rebounded on Tuesday after Merrill Lynch's latest write-down and share sale suggested a possible turning point in the credit crisis, giving a boost to the dollar.
The U.S. currency could extend gains if more economic data this week further assuages market concern about the economy, even as the housing slump shows few signs of bottoming out, traders said.
Investors will be closely watching the ADP national employment survey due later in the day to help reassess forecasts for U.S. jobs numbers that the government will release on Friday.
"The market has been altering excessively pessimistic views about the U.S. economy," said Hideaki Inoue, chief manager of forex trading at Mitsubishi UFJ Trust Bank.
"Key data this week such as the second-quarter growth data and the jobs report later in the week could encourage some investors to shift funds back into the dollar, though it depends on the outcome," said Inoue.
The dollar index, which measures the U.S. unit's performance against a basket of six currencies, was little changed from late U.S. trade on Tuesday at 73.279 when it reached a one-month high of 73.428.
The euro was little changed at $1.5586 after falling 1 percent the previous day, further dented by news on Tuesday that French consumer confidence plunged to a record low for the seventh straight month in July.
The dollar edged down 0.1 percent against the yen to 107.98 yen on selling from Japanese exporters but stayed in sight of a one-month high of 108.30 yen reached on Tuesday.
U.S. crude prices were down slightly on Wednesday after dropping $2 the previous day, relieving some concern about inflation and U.S. consumer spending.
The dollar drew support after the Conference Board said on Tuesday its overall monthly measure of the consumer mood rose in July despite a forecast for a slight drop, halting a six-month slide.
The fact that consumer confidence barely climbed from its lowest level in more than a decade and home prices continued to fall in May was overshadowed by the positive shift in market sentiment, traders said.
AUSSIE AND KIWI DENTED
Market players instead sold the Australian and New Zealand dollars on views that the impact of the economic slump and the credit crisis was spreading into the other regions.
"Worries about the economic and financial sector outlook in Australia and New Zealand are hitting those currencies although it may be only reflecting broad dollar buying," said a trader at another Japanese trust bank.
The Aussie fell 0.4 percent to $0.9486 after hitting $0.9473, a six-week low, hurt by the slide in commodity prices and after the nation's top banks disclosed increased losses from exposure to distressed credit markets.
The New Zealand dollar declined 0.7 percent to $0.7348 and touched a 10-month low of $0.7339 after Reserve Bank of New Zealand Governor Alan Bollard said he sees plenty of room for further interest rate cuts.
The RBNZ is expected to cut rates again in September after it trimmed them by a quarter-point to 8 percent last week, undermining the kiwi in what many analysts expect to be an extended monetary easing campaign to limit the economy's slump.
The kiwi also suffered from reports that New Zealand fund manager Guardian Trust had suspended repayments from a mortgage fund.