Dollar firms on China, earnings jitters

NEW YORK (CNNMoney.com) -- The dollar firmed Tuesday as investors shied away from more risky assets amid concerns about tighter monetary policy in China and disappointing corporate results.

What prices are doing: The dollar was up 0.1% versus the euro to $1.4497 and gained 1% against the Japanese yen to ¥91.15. But it fell 0.3% versus the UK pound to $1.6161.

What's driving prices: The People's Bank of China announced plans to raise reserve requirements for private banks by 0.5% as of next week, according to a brief statement on the central bank's Web site.

The PBOC did not give a reason for the increase, but analysts said the move is a sign that Chinese policy makers are worried that easy money policies could fuel asset bubbles as the global economy recovers.

The announcement raised speculation that other central banks could take steps to tighten monetary policy and sapped demand for higher yielding currencies such as the euro.

The dollar was also supported by concerns that the fourth-quarter earnings period could produce some lackluster results.

After the closing bell Monday, Alcoa reported profits that missed analysts' expectations and Chevron warned that sharply lower refining earnings would drag down its fourth-quarter results.

Meanwhile, the government said the U.S. trade gap widened to $36.4 billion in November from a revised $33.2 billion in October. The shortfall was wider than the $34.5 billion gap economists at Breifing.com had forecast.

What analysts are saying: "The news out of China is probably the main market driver today," said Vassili Serebriakov, currency strategist at Wells Fargo in New York. The announcement "contributed to a pull back in equity markets, which is helping the dollar and yen."

"China has been the locomotive of the global recovery," he said. "Any policy aimed at slowing the recovery is likely to have impact on global risk sentiment," he said.