FOREX-Dollar steadies after slide as greenback funding stays tight

* Fed move and rise in risk appetite hit dollar

* But signs risk rally is running out of steam

* Aussie, pound edge ahead but traders see few further gains

* Graphic: World FX rates in 2020

By Tom Westbrook

SINGAPORE, March 25 (Reuters) – The dollar slowed its decline and gains in riskier currencies petered out on Wednesday, as rising coronavirus cases kept markets on edge and parts of the greenback funding market tight.

Asian trade was bumpy, but currency moves were considerably more cautious than the big gains logged in stocks on hopes of a huge U.S. stimulus package.

The safe-haven dollar, which had pulled back sharply from recent peaks, slipped 0.3% against the euro to $1.0814, and eased against the yen to 110.97 yen per dollar.

Currencies hit the hardest in last week’s flight to the U.S. currency held on to big overnight gains, with the biggest losers firming a tad further.

The British pound rose 0.4% to $1.1796, the Australian dollar tacked on 0.5% to $0.5979. Both had lost more than 5% last week and marked milestone lows.

The U.S Federal Reserve’s offer of unlimited bond-buying, on top of opening discount dollar funding lines to large central banks has supported risk sentiment for the past day and made headway in reducing stress in the financial system.

Together with an enormous U.S. stimulus package in the offing, it helped the Dow Jones to its biggest one-day gain since 1933 overnight.

But nerves and still-elevated demand for dollars in cash capped further gains in currencies like the Aussie, euro and pound.

“It’s a nice rebound and we can probably run with it through the Asian session, but whether this mood can hold 24 hours from now, I’m not convinced,” said Westpac FX analyst Sean Callow.

“The overall (virus) picture is still very grim and almost certainly going to get worse.”

Spain reported its sharpest increase in cases overnight. India announced a 21-day lockdown of its 1.3 billion population.

The World Health Organization said that New York could become the next epicentre of the pandemic.

Within funding markets, signs of stress remain as businesses and investors drive enormous demand for dollars to cover liabilities and as a shelter from a maelstrom that has hit nearly every asset class.

Cross-currency basis swap spreads, which reflect the cost of borrowing dollars abroad, have relaxed for the euro .

But they remain elevated for the yen and Australian dollar, even as the Bank of Japan and Reserve Bank of Australia tap the Fed’s funding lines for billions of short-term dollars.

Against a basket of currencies, the dollar was steady at 101.53 after a 0.6% drop on Tuesday.

“There’s a lot of reasons to believe that we’re not out of the woods yet,” said Chris Weston, head of research at Melbourne brokerage Pepperstone.

“People still feel that the downside risk is far more prevalent…this is a traders’ market, we’re going to get levels where people look to fade this again.”

The New Zealand dollar steadied at $0.5834, while the Korean won extended Tuesday’s 3% gain. (Reporting by Tom Westbrook; Editing by Sam Holmes & Shri Navaratnam)

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