SINGAPORE, Dec. 27 (MNI) - The U.S. dollar was largely unchanged in a subdued Asian session Monday after a mixed start to the session, as risk appetite took a minor hit after China's weekend rate hike. The People's Bank of China said Saturday that it will raise interest rates for a second time in the current cycle as the government steps up its fight against inflation. The 25 basis point increases in one-year deposit and lending rates took effect December 26, the central bank said. They follow rate hikes which came into effect on October 20. "The surge in consumer prices means that Chinese monetary authorities are likely to continue to hike interest rates in the coming year just to play catch-up," commented United Overseas Bank analysts. "Given the aggressive tightening moves in recent months, we now expect PBOC to raise interest rates throughout 2011 with four more 25bps hikes." The initial reaction this morning was a brief selldown against the euro, the Australian dollar and yen crosses, which also put pressure on dollar-yen. But the post-Christmas trading day saw little activity, and major FX pairs then reversed their initial moves, and were mostly trading almost flat in the afternoon here. Dollar-yen was at Y82.90, about where it was at the start of the day, and barely changed from around Y83.02 late Friday in Asia. Euro-dollar briefly pulled back to early lows around $1.3090, before recovering back to trade around $1.3128 in the afternoon, barely changed from $1.3130 on Christmas Eve Friday. The Australian dollar also shuffled on either side of parity against the U.S. dollar through the Asian morning, slipping to an early low of $0.9988 this morning as risk sentiment worsened. Aussie-dollar edged back up through $1.000 to trade around $1.0010 after midday here, but momentum was lacking for further gains, dealers said. Trade activity for the rest of the week is expected to be subdued as market players remain on the sidelines ahead of the start of the new year.

Source