Dollar extends Fed rally in Asian trading

The dollar on Friday extended a rally fuelled by the US Federal Reserve's signal that it could start reeling in its stimulus scheme this year, while worries about China's economy spooked investors.

In Tokyo afternoon trade the greenback fetched 97.75 yen, compared with 97.27 yen in New York late Thursday, as Tokyo's Nikkei stock index cast off early losses to finish 1.66 percent higher.

"It's the Nikkei. That's it," a senior dealer at a major bank in Tokyo told Dow Jones Newswires.

Movements in dollar-yen trading and the Nikkei are closely interlinked as the value of the currency affects the profitability of Japanese exporters.

Global equity markets were sent tumbling after Fed chairman Ben Bernanke said Wednesday the bank could begin to wind down its $85-billion-a-month bond-buying as early as this year if the US economy continues to improve.

With less cash sloshing about financial markets, demand for the dollar rises, making it stronger.

Traders also flocked to the dollar on renewed concerns about slowing growth in China, the world's second largest economy, after poor manufacturing data.

In euro trading, the single currency gained to $1.3242 from $1.3223 in New York, while it bought 129.39 yen compared with 128.62 yen.

Despite the euro's gains, the unit has been pressured by the Fed's expected move, while worries over the recession-hit eurozone jumped again amid turmoil in bailed-out Greece concerning the future of its state broadcaster.

Credit Agricole added that "services and manufacturing sector-related business activity (in the eurozone) has been continuing to contract".

"Accordingly, growth expectations for the eurozone as a whole are unlikely to improve, at least in the short-term," it added.

Investors will be watching a speech later in the day by Bank of Japan Governor Haruhiko Kuroda, hoping for some guidance on the central bank's own giant stimulus drive.

"It will be interesting to hear his take on the monetary easing so far, which has resulted in big swings in the yen, the stock market and other financial indicators," National Australia Bank said.

The dollar was mostly stronger against other Asia-Pacific currencies.

It firmed to 31.23 Thai baht from 31.03 baht the previous day, to 59.68 Indian rupees from 59.67 rupees, to Sg$1.2754 from Sg$1.2717, to 1,155.89 South Korean won from 1,145.65 won. It also rose to 43.97 Philippine pesos from 43.69 pesos and to Tw$30.09 from Tw$30.01.

The dollar slipped to 10,038 Indonesian rupiah from 10,085 rupiah.

The Australian dollar slipped to 92.23 US cents from 92.54 cents while the Chinese yuan fetched 15.91 yen from 15.83 yen.

-- Dow Jones Newswires contributed to this story --