LONDON, Feb 28: The dollar advanced on the yen but lost ground versus the euro on Friday after Japan’s ministry of finance said it had intervened a few times this month against the country’s stubbornly strong currency.

The dollar’s rally was muted as markets doubted Japan’s ability to effectively cap the yen, and traders awaited world powers’ responses to the latest United Nations arms inspectors’ findings on Iraq.

Japanese data showed that the Bank of Japan, which conducts intervention on the finance ministry’s behalf, had spent about $4.36 billion in the currency markets to stem the yen’s rise in February.

The data shows determination on their behalf...and it has given the market a little bit of a bounce, said Derek Halpenny, currency economist at Bank of Tokyo Mitsubishi in London.

But I am still sceptical about Japan’s ability to forestall a move back to levels we have tested yesterday, he said.

The embattled dollar probed a six month low near 116.80 yen on Thursday as traders increasingly viewed Japan’s recent tactics of covert intervention as failing to scare off flows into yen.

Friday, the dollar was up a quarter percent on the yen from late Thursday, trading at 117.86.

But it was down half a per cent on the euro at $1.0800, which gained nearly 0.75 per cent on the yen.

The greenback was also lower against sterling and the Australian dollar and half a per cent off against the Swiss franc

Analysts say weakening the yen is an uphill battle for Japan which complains that a rapid rise in its currency could further damage its economy by hurting export competitiveness.

But with Japan running a large current account surplus, the yen has strong support from local corporates as well as hedging and repatriation by domestic money managers.

Speculative dollar-selling is easier to turn off with intervention, but yen-buying can only be slowed down, said Halpenny.

Japan also surreptitiously sold 678 billion yen in January as part of its new tactic of dampening the yen covertly.

On the geopolitical front, Washington dismissed Baghdad’s agreement to destroy its al-Samoud 2 missiles and pressed on with its war preparations.

Furthermore, euro zone sentiment surveys showed consumer and business confidence slightly down to steady this month.

January’s consumer inflation came out at 2.2 per cent and preliminary estimates put it at 2.3 per cent this month, still above the European Central Bank’s two per cent target ceiling.

Across the Atlantic, US fourth quarter growth figures at 1330 GMT are expected to show the world’s largest economy grew one percent in the final quarter of 2002.

The Chicago purchasing managers’ report is due at 1500 GMT and expected to show a reading of 53 versus 56 in January.

—Reuters