Worries about Japan's economic outlook and speculation that more corporate failures may be in the pipeline were not eased by a rebound of more than two per cent in Japan's benchmark Nikkei share average which ended a four-day losing streak. The yen's woes were compounded by the political problems facing Japanese prime minister Yoshiro Mori, whose popularity is crumbling as he struggles to recover from the fallout of a financial scandal involving Japan's top financial regulator. This allowed the dollar to keep its grip on gains of more than one per cent it has racked up since the release of strong US growth figures on Friday revived talk that the Federal Reserve could raise rates as soon as its August 22 meeting.

"There has been a collapse of confidence in Japan, partly because of corporate failures and partly because of the financial scandal and the political backdrop even as you have a revival in the debate about the US rate rises," said Mark Cliffe, chief economist at ING Barings in London."It looks as if the market has got the appetite to test the 110 level."The dollar came within a whisker of the two-month highs near 109.80 it first hit on Friday after the US growth data and retested on Monday. Traders said sales of dollars aimed at protecting options had thwarted attempts to attack 110 so far but added the dollar could soon find itself free of such obstacles with at least some of these options expected to expire on Tuesday.

Traders said the impetus for another upmove could come from the US National Association of Purchasing Management survey for July, out at 1400 GMT on Tuesday. This, together with Friday's US July jobs report, is expected to either inflame or douse talk of an August US rate hike.

-- (Reuters)