The dollar pared gains and was little changed against the euro on Wednesday as Federal Reserve Chairman Alan Greenspan signalled further increases in US interest rates but offered no clues on their pace or timing. The dollar also surrendered gains against the yen following Greenspan's testimony to the Senate Banking Committee. In a prepared statement, Greenspan said the US economy is expanding at a healthy pace and that despite rate hikes by the Fed, the real federal funds rate "remains fairly low".

His testimony provided no surprises however, and analysts and investors said that with him reading the same statement before the House Financial Services Committee on Thursday there was no expectation of news that would drive the dollar higher or help the US currency maintain its earlier gains.

"The market got what was expected from Greenspan but it hasn't panned into a dollar rally," said Joe Francomano, vice president of foreign exchange at Erste Bank in New York.

"There may be some disappointment, but there was nothing bearish in (Greenspan's) comments about the dollar, the economy or interest rates," he added.

In late trading in New York, the euro rose 0.1 percent against the dollar to $1.3028, recouping earlier losses when it fell as low as $1.2957, according to Reuters data.

Investors began discounting the possibility that Greenspan would say anything dollar-positive on Thursday almost as he concluded his remarks Wednesday.

The dollar was up almost 1 percent against the yen to 105.38 yen, after touching an early high of 105.73. The euro also rose against the Japanese currency to 137.34 yen. The yen fell broadly after Japan's real gross domestic product declined 0.1 percent in the last quarter of 2004. Revised data showed it had also shrunk in the two previous quarters. It is the country's fourth recession in a decade.

Sterling slid 0.6 percent to $1.8851 after the Bank of England said in a quarterly report that risks to inflation and growth projections were "somewhat to the downside."

Against the Swiss franc, the dollar fell 0.3 percent to 1.1873 francs.

Analysts said US economic data releases earlier in the global session had a marginal impact on the dollar, although news of an explosion in Iran briefly rattled the markets. The dollar slipped against the euro and Swiss franc after an Iranian report saying an aircraft had fired a missile near the southern city of Dailam in the province of Bushehr where Iran has a nuclear power plant.

The euro zone currency climbed to a two-week high around $1.3065 on the first reports of the blast. But an array of explanations emerged, ranging from construction of a dam to a fuel tank that had fallen from a plane. At one point, an Iranian government official denied there was any explosion.

Copyright Reuters, 2005