(Recasts; adds comment)
By Gertrude Chavez-Dreyfuss
NEW YORK, Nov 28 (Reuters) - The dollar edged lower against the euro and trimmed gains versus other European currencies on Wednesday as comments from a Federal Reserve official and a key economic report affirmed expectations for further rate cuts.
The U.S. currency, however, posted steep gains against the yen, buoyed by sharp gains in the stock market, with investors wading back into riskier trades.
Fed Vice Chairman Donald Kohn said renewed financial market turmoil could slow the U.S. economy more abruptly than thought, signaling a willingness to cut U.S. interest rates further.
His comments were consistent with the Fed's "Beige Book" report, which said the U.S. economy from October to mid-November grew at a slower pace than in the previous period. The report, an anecdotal summary of economic conditions nationwide, also said U.S. housing demand was "quite depressed". For more see [ID:nWAT008505].
"The dollar is going to stay under pressure as long as markets continue to anticipate near-term Fed easing. Certainly, the speech of Governor Kohn this morning is consistent with that," said Daniel Katzive, director of foreign exchange strategy at Credit Suisse in New York. "Markets have moved once again to fully price in a rate cut in December."
Late afternoon in New York, the euro edged up against the dollar to $1.4833 <EUR=> after trading lower for most of the session. It fell earlier to $1.4710, a one-week low, according to Reuters data.
But the dollar traded 1.2 percent higher against the yen at 110.11 yen <JPY=> after trading as high as 110.42, a one-week high. Gains in the dollar versus the yen were in line with a surge in the U.S. stock market, which rose on the view that more Fed rate cuts are forthcoming.
"The yen has pretty much weakened across the board and that's because of the 300-point rally in the Dow Jones industrials," said Bob Lynch, head of G10 FX strategy at HSBC Bank USA in New York.
The euro rose 1.2 percent against the yen to 163.33 <EURJPY=>, while the high-yielding Australian dollar jumped 2.5 percent 98.04 <AUDJPY=>.
The dollar rose 0.6 percent against the Swiss franc <CHF=> to 1.1115, earlier hitting a one-week peak of 1.1195.
The greenback had surrendered some of the session's earlier gains after government data showing new orders for long-lasting U.S.-made goods dropped for a third month in October, with companies appearing wary about making new investments. [ID:nN28592815].
Most analysts believe the dollar could further decline given the weak tone in U.S. economic data and the trickle of bad news from financial companies hit by the credit crunch.
The Fed is widely expected to cut interest rates by a quarter percentage point in December to 4.25 percent and again next year to stem economic fallout from the housing debacle. The reduction in rates has eroded the dollar's yield appeal. (Editing by James Dalgleish