The dollar gained against other world currencies Tuesday in a move traders attributed to remarks by US Federal Reserve chairman Ben Bernanke who indicated more could be done to help US banks weather a lingering credit crunch.
Dealers said Bernanke's comments helped support the dollar which has been battered in the past year by concerns about the US economy and a lowering of US interest rates.
The European single currency fetched 1.5664 dollars at 2100 GMT, down from 1.5730 dollars in late New York trading a day earlier.
Against the Japanese yen, the dollar rose to 107.50 yen, up from 107.10.
"We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end," Bernanke told a forum.
Ashraf Laidi at CMC Markets said Bernanke's remarks were taken as a "lifeline" for the dollar.
"This may be what the markets wanted to hear after credit woes pertaining to US financials resurfaced sharply (on Monday)," Laidi said.
Banks came under pressure Monday after a warning by US investment bank Lehman Brothers that more subprime mortgage losses were likely, and that key US government backed mortgage finance firms Freddie Mac and Fannie Mae may need to raise more capital to cover their commitments.
Financial stocks and Wall Street shares rebounded strongly Tuesday, however, as oil prices tumbled.
A statement Tuesday by some of the world's most powerful leaders at the G8 summit in Japan made no mention of the dollar's current weakness, despite its gains Tuesday, although US President George W. Bush again said that he was committed to "a strong dollar."
The dollar had earlier found limited support after weekend remarks from Bush in favour of "a strong dollar" ahead of the G8 summit.
The markets are now awaiting the latest quarterly earnings from many large US corporations and banks to get a fresh lead on the economic outlook.
"The (foreign exchange) market backdrop remains one of relatively high risk aversion," said Calyon analyst Mitul Kotecha.
"New credit fears ... following a report that the US (home loan) agencies Fannie Mae and Freddie Mac required more capital as well as news that mortgage lender IndyMac was in urgent need of fresh capital, resulted in an increase in risk aversion."
In late New York trade, the dollar was priced at 1.0335 Swiss francs, up from 1.0261 on Monday.
The pound was at 1.9693 dollars after 1.9765.
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