* U.S. dollar and yen retain gains on risk aversion
* U.S. bank rescue plans disappoints, sending stocks lower
* Chinese exports tumble, BOE inflation report in focus
By Anirban Nag
SYDNEY/SINGAPORE, Feb 11 (Reuters) - The U.S. dollar and the yen held onto hefty gains on Wednesday as risk aversion returned with a vengeance after Washington's latest bank bailout package proved long on promises but short on details.
In Asian trade, the euro weakened to $1.2904
Traders noted Japanese investors were absent for a holiday and they had been big buyers of yen in recent days.
In an anxiously awaited announcement, U.S. Treasury Secretary Timothy Geithner said on Tuesday that the government was considering ways to set up a public-private fund that could absorb up to $1 trillion in bad assets from banks' books. [ID:nN102559] But Geithner provided scant details about the plan, leaving investors with the impression that months into the global economic crisis, Treasury was still struggling for a solution that would satisfy taxpayers and banks and restore normalcy to crippled credit markets.
"Geithner's new bailout plan did not live up to expectations, by a large margin, and his comments that the government 'will have to try things we've never tried before' and 'we will make mistakes' did not exactly instill market confidence," said Matthew Strauss, senior currency strategist at RBC Capital.
The resulting uncertainty saw a flight to less-risky assets
such as the U.S. dollar, yen and government bonds and away from
stocks and riskier currencies such as the Australian
Disappointment over the bank plan overshadowed passage of the $838 billion economic stimulus package by the Senate.
However, the Senate and the House of Representatives will now have to haggle over the shape and size of the final plan, leaving much uncertainty over the final size and scope of spending and tax cuts. [ID:nN10309684]
CHINESE TRADE DATA AND BOE REPORT
In the run up to the bank rescue plan from the United States, investors had largely ignored a raft of dismal economic data, especially weak export numbers from Asia.
Trade data from China released on Wednesday showed a sharp 17.5 percent drop in January exports from a year earlier, and a 43.1 percent decline in imports.
The data caused a fleeting dip in the Aussie
"The market has been willing to look for signs of stabilisation and less fast deceleration in economic activity, but it remains vulnerable to a setback in terms of economic numbers or a sense that policymakers are not going to provide the clarity that will remove longer-term uncertainties," said Tony Morriss, senior currency strategist with ANZ Bank. The Bank of England (BoE) is also due to publish its quarterly inflation report at 1030 GMT, which could give clues on further interest rate cuts. The central bank is set to revise lower its estimate for growth.
"It will be interesting to know if the BoE can go the Fed way and drop interest rates to zero and whether it will adopt quantitative easing," said Robert Rennie, chief currency strategist at Westpac.
The BoE has already cut interest rates for five months
running to a record low of 1 percent, sending the sterling
On Wednesday, sterling added to its losses, hitting
$1.4439, and retreating further from a three-week high struck
earlier in the week.
The euro also edged up against the pound
Also due on Wednesday is the UK jobs report with uneployment rate expected to have risen to 6.3 percent in December.
The Swedish central bank will also review rates on Tuesday, and is likely to lower rates by 50 basis points to support the economy.
(Additional reporting by Kevin Plumberg and Vidya Ranganathan; Editing by Wayne Cole)