Dollar gains on mixed earnings

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NEW YORK (Reuters) -- The dollar rose on Friday, recovering from steep losses earlier in the week, as mixed U.S. corporate earnings raised some concern about the economy and enhanced the greenback's safe-haven appeal.

U.S. data showing construction of new homes rose in June helped ease some of that anxiety, capping dollar gains.

But the overall mood was one of caution, traders said. News that General Electric (GE, Fortune 500) profits fell by almost half in the second quarter and that Bank of America (BAC, Fortune 500) reported a lower quarterly profit added to market worries.

"There's still an underlying tone of risk aversion looming. People don't feel comfortable with the economy," said Melvin Harris, strategist at Advanced Currency Markets in New York. "Earnings today were not stellar while housing starts data was good but is a volatile indicator," he said.

The uncertainty had investors wary of perceived higher-risk currencies such as the euro and Australian dollar. Steven Butler, head of FX trading at Toronto-based Scotia Capital, said the euro's failure to extend gains much above $1.41 underscored the anxiety.

"It still feels like we're one bad number away from things turning negative again," he said.

In late afternoon trading, the euro was down 0.3% at $1.4109 after earlier rising to $1.4110. The dollar rose 0.5% to ¥94.24.

An index that measures the dollar against a major currency basket rose 0.3% after falling to a six-week low on Thursday. Sterling fell 0.6% to $1.6346.

Bomb blasts at hotels in Indonesia also dampened risk sentiment earlier in the session.

"The greenback's slightly better tone is once again a reflection of a more jittery global sentiment, with a bomb explosion in Indonesia weighing on the mood early," said Vassili Serebriakov, a currency strategist at Wells Fargo Bank, in New York. "The dollar is ending the week by recovering some of the ground it lost in recent days."

The market cheered stellar earnings from Goldman Sachs (GS, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) earlier this week, as well as from Intel (INDC), but investors were reluctant to get too optimistic.

Markets shrugged off euro zone trade data showing a surplus of 1.9 billion euros in May and comments from Japan's top financial diplomat about the dollar remaining a core asset in Japan's $1 trillion foreign currency reserves.

Rintaro Tamaki also said he would not rule out Japanese intervention but added that foreign exchange rates should be determined by the market.

Greg Salvaggio, vice president for trading at Tempus Consulting in Washington, said low risk tolerance was keeping traders on short leashes and currencies in narrow ranges.

Those ranges may hold, he added, until the Federal Reserve details its strategy for raising interest rates from near zero and withdrawing some of the trillions of dollars it has spent to support the U.S. economy during the crisis.

"This has been a difficult market for forex traders," he said.

Fed Chairman Ben Bernanke will deliver his semiannual monetary policy testimony to the U.S. House Financial Services Committee next week.