LONDON, Jan. 4 (MNI) - The dollar pared back overnight gains during European morning trade Monday with the euro leading the move.

The single European currency was able to make gains against the yen and Swiss, while keeping euro-sterling buoyed above key support at stg0.8851 despite strong demand for sterling through the session.

EURO SUMMARY: Opened in early Europe around $1.4300

of $1.4337 on early demand for Aussie and euro-yen. Cross yen selling into Tokyo trade reversed the early move with euro-dollar reversing, touching a low of $1.4257 after stops through $1.4265/60 were triggered. Rate recovered on Asian sovereign buys but struggled to hold on to initial recovery gains above $1.4300. Rate touched $1.4308 just ahead of the European open before early Europe pressed it back to $1.4270. Fresh Asian sovereign demand emerged to lift rate back above $1.4300 with steady buying through the session allowing rate to eventually break above the earlier Asian highs at $1.4337. Middle East demand then provided the second wave of buying that extended the rally to $1.4400. Rate held off best levels ahead of the New York open, finding support between $1.4375/70. Euro was seen holding firmer levels against the majors, the single European currency leading the move against the dollar.

US:Reported comments from US officials weekend/Monday, * FED KOHN: Vice Chair Kohn at AEA this morning, echoing FOMC in saying fed funds will be 'exceptionally low ... for an extended period.' He says the Fed must start tightening well before the economy has returned to high resource use and the timing depends on economic forecasts. * FED BERNANKE: Bernanke, also in Atlanta this morning, denies Fed caused the housing bubble through excessive monetary ease. The monetary policy following the 2001 recession was "reasonably appropriate," he said. Policy should be based on expected, not current inflation and be forward looking. The best response to the housing bubble would have been regulatory. * In Q&A; Bernanke saying need better information on international capital flows. A bubble mentality, not the cost of funds, caused the housing boom; a 'savings glut' was behind the housing boom and bust. - Dollar still a safe haven currency in stressful times; not worried about confidence in the U.S. financial system. - Asset purchase effect showing through to short-term borrowing is minimal; confident can restrain broad money, credit growth.

EUROZONE: Data released in the eurozone Monday, * EUROZONE: Dec manufacturing PMI 51.6; Flash 51.6; Nov 51.2 - Rtrs * GERMANY: Dec manufacturing PMI 52.7; Flash 53.1; Nov 52.4 - Rtrs * FRANCE: Dec manufacturing PMI 54.7; Flash 54.4; Nov 54.4 - Rtrs * ITALY: Dec manufacturing PMI 50.8; Nov 50.1 - Rtrs * SPAIN: Dec manufacturing PMI 45.2 vs Nov 45.3 - Rtrs * ITALY: Italian preliminary December HICP rose 0.2% m/m and 1.1% y/y, accelerating from November's +0.8% y/y rise. The preliminary data would bring the average HICP increase for 2009 to +0.8%, down from +3.5% in 2008 which was the steepest y/y rise since the series start in 1997.

YEN SUMMARY: Opened in early Europe around Y92.87 and Y132.80 - Dollar-yen edged to an early high of Y93.10 (highest level since early Sep) into Asian trade as rate reacted to early demand for euro-yen and Aussie-yen. The Tokyo open reversed this early move as local accounts sold yen crosses, euro-yen dropping from early highs of Y133.23 to Y132.60, before a second wave of selling extended move to Y132.40. Dollar-yen was dragged down to Y92.70, with rate consolidating the reversal between Y92.70/90 ahead of the European open. Fresh dollar demand into Europe saw rate edge back toward the earlier highs, extending the topside to Y93.21 before faltering. Euro-yen recovered back to its opening level around Y133.00. The euro then began to lead the pressure on the dollar, the move taking euro-yen through earlier highs and on to Y133.73, while dollar-yen eased back to retest the overnight lows at Y92.70 before edging back to Y92.90/95. A Y93.00 strike option, which is due to roll off at 1500GMT, suggested to be keeping rate in close proximity.

JAPAN: Reported comments from Japanese officials Monday, * HATOYAMA: Japanese Prime Minister Yukio Hatoyama told a televised news conference at the start of the New Year that his administration is focused on seeking parliamentary approval of the second supplementary budget for the current 2009 fiscal year during the 150-day ordinary Diet session starting in mid-January as part of his administration's efforts to fight poverty and allay concerns about sustained economic growth and social security. He said he planned to maintain the current cabinet lineup to ensure consistency in policy-making ahead of the upper house election expected sometime in the summer of 2010. He declined to discuss how many seats the ruling Democratic Party of Japan wishes to win in the election.

- John Webb London bureau (44 207) 634 1628 jwebb@marketnews.com

Rates in London Trading TIME EURO-USD USD-YEN CABLE EURO-YEN EURO-STG 0600 GMT 1.4300 92.87 1.6095 132.80 0.8885 0700 GMT 1.4295 93.05 1.6090 133.01 0.8884 0800 GMT 1.4305 93.05 1.6100 133.10 0.8885 0900 GMT 1.4335 92.85 1.6150 133.10 0.8876 1000 GMT 1.4395 92.85 1.6210 133.65 0.8880 1100 GMT 1.4377 92.95 1.6182 133.63 0.8884