The dollar hit a two-month high against the yen on Tuesday as Japanese data suggested softness in parts of the economy, while U.S. stocks rose as energy shares gained as a nuclear fuel dispute between Iran and the West escalated, according to Reuters. Trading in the U.S. markets was fairly low key given that markets in Europe were closed the day after the Christmas holiday. Economic data out of Japan that painted a picture of low inflation and modest wage growth suggested the Bank of Japan could put off an anticipated rise in interest rates until later in 2007. This put pressure on the yen across the board as investors sought out higher-yielding currencies and Japanese government bond yields fell as prices rose, leading to gains in the U.S. Treasury market. "Prices firmed marginally in the Far East when tame inflation news out of Japan overnight offered a little bit of support to global debt markets," said John Canavan, analyst at Stone and McCarthy Research. Japan's core consumer price index rose in line with expectations and personal consumption fell less than forecast in November, but the data failed to shift doubts about whether Japanese rates will be lifted from 0.25 percent in January. "The household spending data was better than expected. But if you ask whether that means there is a 'go' sign for a Bank of Japan rate rise in January, I don't think that's the case," a Japanese trust bank trader said. "I think the sense in the market is that a rate rise in January is still a bit difficult." Investors began to scale back expectations of a hike last week after BOJ Governor Toshihiko Fukui said Japanese consumption and consumer prices had softened. The dollar was last around 118.91 yen having touched a two-month high of 119.01 yen on electronic trading platform EBS, while the benchmark 10-year Treasury note was last up 20/32 in price at 100 06/32 for a yield of 4.60 percent. Over the weekend the United Nations Security Council said it had imposed sanctions on Iran's trade in nuclear materials and technology, drawing a warning from Tehran, which said it would use "any weapon to defend itself. This initially drove oil above $63 a barrel and boosted U.S. stocks as energy shares rose, but unseasonably warm weather in the United States saw crude futures reverse these gains, even as the stand-off unfolded with Iran, the world's fourth-largest producer of crude. Following a quiet session in Asia, the Dow Jones industrial average was last up 27.8 points, or 0.22 percent, at 12,3710.78, while the Standard and Poor's 500 Index was up 3.48 points, or 0.3 percent, at 1,414.21. The Nasdaq Composite Index was up 7.53 points, or 0.3 percent, at 2,408.71. Shares of energy companies including Exxon Mobil Corp. and ConocoPhillips rallied on the back of the Iran news in an otherwise routine session. "This is going to be a low-volume day and when you get a reduced audience, you get more dramatic moves. Either way, my sense is we're probably going to go up here," said Al Goldman, chief market strategist with A.G. Edwards in St. Louis. Earlier, Taiwan shares hit a six-year high on hopes that financial ties with China could accelerate, and a regional index touched the latest in a series of record highs. Tokyo's Nikkei rose 0.5 percent, with the slower-than-expected fall in personal consumption pushing Fast Retailing Co. Ltd. up 1.8 percent, but overall activity was low.
