Dollar slightly up in lower 107 yen level on stocks' rebound

The U.S. dollar rose slightly in the lower 107 yen range Monday morning in Tokyo as market players found comfort in the rebound of U.S. and Japanese stocks.

At noon, the dollar was quoted at 107.32-37 yen against 107.07-17 yen in New York and 107.31-34 yen in Tokyo at 5 p.m. Friday.

The euro was quoted at $1.4817-4822 and 159.06-11 yen compared with late Friday's quotes of $1.4820-4830 and 158.85-95 yen in New York and $1.4809-4812 and 158.95-99 yen in Tokyo.

Dealers said dollar sentiment was lifted on the back of New York stocks' strong rebound Friday on late buying sparked by expectations of a reported bailout of a troubled bond insurer.

Tokyo stocks followed suit, surging about 2 percent Monday morning. A rise in Tokyo stocks tends to heighten investors' risk appetite, which works in favor of the higher-yielding dollar against the yen. Investors also recover risk appetite for yen-carry trades, in which investors raise funds in yen at relatively low interest rates and convert them to the dollar, for instance, to invest the money in higher-yielding assets elsewhere

''The atmosphere in financial markets is gradually changing in a positive direction (in favor of the dollar),'' said Ryohei Muramatsu, senior currency trader at Commerzbank.

In New York on Friday, the dollar briefly fell to the upper 106 yen zone but later rebounded to the lower 107 yen level on firm U.S. equities after CNBC reported that a plan to bail out struggling U.S. monoline bond insurer Ambac Financial Group Inc. could be announced Monday or Tuesday, dealers said.

The market has been closely watching the fate of monoline bond insurers -- which cover the risk of bonds or other securities defaulting -- as their payments are expected to swell amid the U.S. housing slump, serving as another risk factor for the U.S. economy.

Recently, the currency market has been largely swayed by negative news in connection with monolines and the U.S. housing crunch.

But Muramatsu said the market is becoming less sensitive to negative factors involving the U.S. subprime mortgage crisis, likely prompting investors to resort again to yen-carry trades on renewed risk appetite.

This week, investors will closely watch a series of U.S. economic readings, including Tuesday's consumer confidence index for February, as well as U.S. Federal Reserve Board Chairman Ben Bernanke's congressional testimony Wednesday and Thursday on monetary policy.