Euro gains in Asian trade ahead of ECB decision

TOKYO (AFP) - The euro edged up against the dollar and the yen in Asian trade Tuesday as the market bet on an imminent rise in eurozone interest rates, dealers said.

The dollar slipped to 121.71 yen in Tokyo morning trade from 121.76 in New York late on Monday.

The euro firmed to 1.3500 dollars from 1.3489 and to 164.30 yen from 164.25, approaching a fresh record against the Japanese currency.

The dollar lost ground in US trade overnight on news that eurozone producer prices rose 0.4 percent in April from March and were up 2.4 percent year-on-year, higher than the 2.2 percent expected by analysts.

The report reinforced expectations that the European Central Bank will raise its benchmark lending rate by 25 basis points to 4.0 percent later Wednesday amid robust growth in the 13-nation eurozone.

In contrast, Japan's key official lending rate stands at just 0.5 percent much lower than the benchmark US rate of 5.25 percent which has kept the yen under pressure as investors put their money into higher yielding currencies.

Players were keen to hear remarks by ECB chief Jean-Claude Trichet for clues on prospects for additional rate hikes in the future.

If Trichet tones down his remarks compared with previous press conferences, then there is a risk the euro might slide against the dollar, said Yoshifumi Suzuki, forex dealer at Hachijuni Bank.

"The euro is being bought back ... but traders remain reluctant to let go of the dollar. The recent US employment data have given a sense of confidence on the US economy," said Suzuki, referring to Friday's better than expected monthly non-farm payrolls report.

Market participants were also monitoring the recent slump in Chinese stock markets although so far there has been only a limited impact on major currencies, dealers said.

The Group of Eight summit of world leaders in Heiligendamm, Germany from Wednesday is also likely to draw attention although dealers said they do not expect forex to be high on the agenda, if at all.