"not doing enough to prove it had done away with banned weapons."
Dollar Mixed After Blix Report on Iraq
Fri Feb 14, 2:20 PM ET Add Business - Reuters to My Yahoo!
By Andrea Ricci
NEW YORK (Reuters) - The dollar was mixed on Friday after a report by United Nation's weapons inspectors did little to change the opinions of Security Council members on whether or not war should be waged with Iraq.
Chief U.N. arms inspector Hans Blix said there was no evidence that Iraq had weapons of mass destruction and noted that Baghdad had taken some steps to cooperate with his team.
He also questioned some of the intelligence Secretary of State Colin Powell (news - web sites) presented to the Council last week to show Iraq was hiding weapons.
But Blix also pointed out that Iraq had missiles with ranges that exceeded U.N.-mandated limits and said that the Mideast country still was not doing enough to prove it had done away with banned weapons.
Diplomats from France, Russia and China -- which have opposed using force to assure Iraqi compliance -- said the inspections were producing results and called again for more time for inspectors to do their job.
But key U.S. ally Britain said Iraq had shown again that it was not cooperating fully, and Powell said Iraq was playing tricks on the United Nations (news - web sites).
"The Security Council is even more divided than last week ... and if anything, the foreign exchange market is even more uncertain," said Ron Simpson, senior currency analyst at MMS International.
By early afternoon in New York, the dollar was up about three-tenths of a percent against the euro at $1.0785 per euro and up a half a percent versus the Swiss franc at 1.3626 francs .
"The dollar is just chopping around until something new happens," said Marc Chandler, currency strategist at HSBC in New York.
U.S. stocks initially rose and gold and oil prices fell in response to the testimony by Blix and nuclear expert Mohamed ElBaradei on views it pushed back the probability of war.
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Political analysts surveyed by Reuters said that on balance, the testimony gave a bit more ammunition to countries that wanted to give more time to the inspectors. Still, they said it was unlikely either side would be materially swayed by the reports.
"I don't think Blix has changed any minds. There was something in there for everyone and satisfaction for no one," said Rosemary Hollis, head of the Middle East program at the Royal Institute of International Affairs in London.
Dealers said the dollar's rebound against European currencies on Friday had more to do with position-squaring after its big declines on Thursday than with any reaction to the U.N. report. The dollar fell more than 1 percent against the euro and the franc on Thursday.
Bob Lynch, currency strategist at BNP Paribas, said that if Blix had been more hawkish, thereby lending more support to the U.S. position, the dollar might have picked up more of a bid.
"The Blix report really didn't give any incentive to buy the dollar, which might have been the case if he had been more critical of Iraq," he said.
For the dollar, the worst-case scenario is unilateral U.S. action because it would likely raise the costs of a war to the nation and could discourage capital inflows.
DATA BY THE WAYSIDE
With the focus on the United Nations, the dollar paid little attention to news that U.S. industrial output jumped 0.7 percent in January, boosted by renewed auto production. Economists on average had expected a rise of only 0.3 percent.
Capacity utilization rose to 75.7 percent from 75.2 percent in December.
The dollar did slip modestly after the University of Michigan reported that its preliminary February consumer sentiment index fell to 79.2 from 82.4 in January. Analysts had forecast a reading of 81.2.
JAPANESE GROWTH
The yen drew some bids after Japan said gross domestic product for the three months to Dec. 31 grew 0.5 percent from the previous quarter, stronger than expected.
The dollar was trading at 120.31 yen , down 0.26 percent. The euro, which was widely thought to be overbought versus the yen, was off 0.61 percent at 129.75 yen .
TJ Marta, senior foreign exchange analyst at Citibank, said the data did not change the bank's belief that Japan's economy was in trouble.
"For one thing, the (capital expenditure) and consumer demand numbers varied substantially from monthly numbers, and for another, a fair amount of the growth came by way of deflationary pressures. So we don't see a whole lot of positives in this number," he said.
Separately, the Bank of Japan decided to keep monetary policy unchanged, as expected.
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