TOKYO, Oct 24: The dollar held onto the mid-122 yen level in Tokyo on Wednesday, while lingering weakness in the euro has focused attention on a possible rate cut by the European Central Bank, traders said.

The dollar traded at 122.51-53 yen here on Wednesday against 122.62-65 yen in New York and 122.60-65 yen in Tokyo late Tuesday.

Tsukamoto said the gains would be capped by profit-taking next week, however, as further signs were likely to emerge of the impact the terrorist attacks have had on the US economy.

Stocks are starting to advance, and ahead of next week’s economic figures (out of the US), we may see some profit-taking in US stocks. Consequently, we may also see some profit-taking on the currency market, with the dollar’s advance stopping around the 123-yen level, he said.

Standard and Poor’s MMS managing analyst Hideki Naito said the yen has been weakened by speculative selling by US funds, backed up by talk about Japan’s lacklustre fundamentals, such as its worsening balance of trade.

Keeping the dollar in check, he said, were speculative players who have been buying one-week call options at around 122-124 yen, where profit-taking was likely to cut in.

Traders were split on expectations of a rate cut by the ECB, which is scheduled to meet Thursday, as the euro trades against the dollar at the bottom of its recent range.

The euro bought $0.8914-16 compared with $0.8908-10 in New York and $0.8908-10 in Tokyo late Tuesday.

Against the yen, the euro was quoted at 109.23, against 109.21 in New York and 109.32 in Tokyo late Tuesday.

The euro/dollar has been dripping down, said Naito. On Tuesday, the euro hit a six-and-a-half-week low of 0.8868 against the dollar, partly as a result of liquidation of euro-long positions built up after the September 11 attacks, he said.

Those long-euro positions have almost been liquidated so currently the trading bias has shifted to the (euro) downside, said Naito, adding he believed the market expected the ECB to refrain from cutting rates this week.

Moderate speculative buying should appear at that level unless there is a fall through and they will join in the selling, he said.

Tsukamoto agreed the market was looking for a reason to sell the euro.

This is a situation (for the euro) that will be easily influenced by any market-moving news, Tsukamoto said.

But unlike S and P’s Naito, he said traders expected the ECB to step in to stem the euro’s fall.

As testing of the euro’s downside continues, expectations are increasing for a rate cut by the ECB, he said.

There will be further rate cuts this year in Europe but the ECB may not act at a meeting Thursday, DBS Bank in Singapore said.

ECB chief (Wim) Duisenberg has mentioned he needed more evidence that inflation has been tamed, the bank said.

In late Singapore trading, the dollar firmed to 10,205 Indonesian rupiah from 10,150 on Tuesday, and 51.95 Philippine pesos from 51.81.

It was lower at 1.8255 Singapore dollars from 1.8258, 1,296.05 South Korean won from 1,304.45, 34.5455 Taiwan dollars from 34.552, and 44.78 Thai baht from 44.82.—AFP