By Don Curren
TORONTO (Dow Jones) -The U.S. dollar is modestly lower against the euro and yen Monday morning as the resolution of Dubai’s credit crisis was tempered by continued concern over Greek debt.

The euro drew some support from Abu Dhabi’s last-minute bailout that allows Dubai World to service a $3.5 billion bond payment due Monday, but investors appeared wary of pushing the single currency too far before Greece unveils its plans for reducing its budget deficit.

Monday morning, the dollar was at Y88.55 from Y89.22 late Friday, according to EBS via CQG. The euro was at $1.4641 from $1.4621 and at Y129.64 from Y130.43. The dollar was at CHF1.0325 from CHF1.0344, while the was U.K. pound was at $1.6241 from $1.6239.

The Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 76.435 from 76.564. The index is at its highest levels since early November.

The dollar initially advanced against the Japanese currency on the Dubai news, but soon gave up its gains, falling to around Y88.60 as Japanese exporters and bank traders sold into the rally, dealers said.

The Dubai news wasn’t enough to set the direction of the dollar’s exchange rate versus the yen, the direction of which depends more on coming U.S. events, said Shuichi Kanehira, senior trader at Mizuho Corporate Bank.

He expects the greenback to trade in a Y87.00-Y90.00 range this week.

There are no significant U.S. data reports ahead of the interest rate decision and statement Wednesday by the Federal Reserve’s policy-setting committee. Investors may choose to wait on the sidelines until they have the Fed’s latest words on the direction of U.S. monetary policy and the economy, said traders.

The latest Tankan survey by the Bank of Japan was also positive, showing the main diffusion index at -24. This was better than the -27 forecast and well up from the previous quarterly reading of -33. However, reaction to the survey was muted as the data also showed that capital expenditure plans are being cut sharply, a signal business confidence in the future is poor.

Light trading flows contributed to the gyrations in the dollar against the yen, with traders noting increasingly light trading on Monday mornings as the holiday season approaches.

“We saw a slight pick up in risk appetite on the back of [the Dubai story] as it broke in Asia,” said Adam Cole, chief currency strategist at RBC Capital Markets in London.

“We’ve basically consolidated that in London. Other than that, it’s all fairly quiet,” Cole said.

The pound was also modestly higher against the dollar after recovering from earlier weakness. It largely shrugged off the latest housing report from Rightmove showing that prices fell 2.2% this month.

Other risk currencies, such as the Canadian, Australian and New Zealand dollars, failed to make any headway despite the gains for the euro.

On Friday, the dollar bloc currencies, which had previously tended to rally on strong U.S. data, retreated after stronger-than-expected U.S. retail sales data.

“What we saw after Friday’s data was the primary beneficiary of the U.S. data was the U.S. dollar,” Cole said.

Optimism over the global economy was also encouraged by news that Citigroup Inc. is about to repay its credit-crunch bailout from the U.S. government.

Canada Morning

The Canadian dollar is moderately lower Monday morning as it continues to struggle in the wake of a weak performance on Friday after strong U.S. retail sales data boosted the greenback.

The U.S. dollar is at C$1.0643 from C$1.0609 late Friday.

A report from TD Securities said the Canadian unit finds itself in the unusual position of being the worst performer so far on the day among the major currencies.

-By Don Curren, Dow Jones Newswires; 416-306-2020; don.curren@dowjones.com

(Nick Hastings in London and Takashi Nakamichi in Tokyo contributed to this article.)

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