ANALYSIS-FX analysts say Bernanke nomination won't boost dlr

NEW YORK, Aug 25 - Currency investors and analysts said the nomination of U.S. Federal Reserve Chairman Ben Bernanke to a second term is not likely to immediately boost the U.S. dollar.

The decision removes the fear of a change in one of the key players as the U.S. struggles to recover from its worst economic crisis in decades. Still, the reappointment won't ease the pressure on the dollar that is coming from a ballooning U.S. deficit and interest rates near zero.

Bernanke faces a huge task, analysts said, and changes in policy, including the removal of programs designed to stabilize markets, are likely to affect the dollar in coming years.

While many foreign exchange analysts and traders think the recession may be ending, Bernanke's Fed still has to undo most of the emergency lending programs and return interest rates to more normal levels without disrupting financial markets.

The Fed also must contend with the foreign holders of massive amounts of Treasury debt who worry about ongoing dollar weakness due to big deficits and slow growth.

U.S. officials have long stated that a "strong dollar policy" is in the best interest of the country, but Bernanke will have to go beyond the rote repetition of that mantra in coming years.

"There was a lot of lip service in the past about a strong dollar policy," said Samarjit Shankar, a managing director for global strategy at The Bank of New York Mellon in Boston. "That policy now has to have more substance. The dollar's value is one of the major issues Bernanke will have to address."

Since 2006, when Bernanke was sworn in, the dollar index, which measures the value of the greenback against a basket of six currencies, is down more than 12 percent. In the meantime, the euro has appreciated about 18 percent versus the greenback, while the dollar fell more than 19 percent against the Japanese yen, according to Reuters data.

The dollar remained lower against both the euro and Japanese yen on Tuesday after U.S. President Barack Obama announced the renomination of Bernanke and credited the Fed chairman with preventing another Great Depression.

GREENSPAN'S SHOES

Despite the dollar's decline, currency investors have been among the less skittish about Bernanke's handling of U.S. monetary policy since he became Fed chairman.

Filling the shoes of Alan Greenspan, who presided over the Fed during the longest economic expansion in U.S. history, was always going to be a tough proposition, they said. The dollar was already in a powerful downdraft long before Greenspan left office, falling about 25 percent from its peak in July 2001 to the end of Greenspan's tenure in 2006.

The euro last traded in New York at $1.4330, while the dollar exchanged hands at 94.47 yen.

Bernanke, speaking after President Obama renominated him, said the Fed had been challenged by the unprecedented events of the past few years.

Analysts said if he reverses the Fed's course too quickly, it could upend the economy, just as it is beginning to recover. Move too slowly and all the emergency cash that the Fed has pumped into the economy could trigger a nasty bout of inflation, hurting the dollar further.

For now, Wall Street can rest easier, said Chris Rupkey, senior U.S. economist at the Bank of Tokyo-Mitsubishi in New York.

"Reappointing him will increase his stature as Fed chairman immeasurably," he said. "If he can pull off this recovery that still needs nurturing, he could well go down as one of the greatest Fed chairmen in history."