TOKYO: The dollar weakened in Asia Tuesday with markets eyeing a US Federal Reserve meeting later in the week, while the euro firmed as risk sentiment rose on upbeat China data.
The dollar was quoted at 78.20 yen in Tokyo afternoon trade from 78.27 yen in New York late Monday.
The euro bought $1.2772 from $1.2758 while it was at 99.90 yen from 99.86 yen in US trade.
Dollar-yen trading would likely stay within a narrow range as markets speculate about whether the US central bank meeting on Wednesday and Thursday will see a third round of bond buying, or quantitative easing, to power the world's largest economy, dealers said.
"Opinion is mixed toward whether the Fed would initiate QE3 (a third round of quantitative easing), and the market is having a hard time factoring in a possible outcome," said Kengo Suzuki, forex analyst at Mizuho Securities in Tokyo.
There was also caution ahead of a German court ruling on the eurozone's bailout fund, but the euro won a measure of support on upbeat Chinese data that showed bank lending in August grew to 703.9 billion yuan ($112 billion), up from 540.1 billion yuan in July.
The data from the People's Bank of China surpassed market expectations of 600 billion yuan in new loans, according to a forecast of 13 economists surveyed by Dow Jones Newswires.