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FOREX-Dollar falls on Russia comments, BRICs awaited

Published 06/16/2009, 04:07 AM
Updated 06/16/2009, 04:16 AM
SEBF
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* Dollar falls broadly on Russia comments on FX reserves

* Market anticipate comments from BRICs meet

* Yen climbs across the board on risk aversion

(Adds comments, details, updates throughout; previous TOKYO)

By Naomi Tajitsu

LONDON, June 16 (Reuters) - The dollar fell broadly on Tuesday after traders took comments from Russia that the world needs new reserve currencies as a signal that it may be looking to cut the share of U.S. assets in its currency portfolio.

Russian President Dmitry Medvedev's comments on Tuesday preceded a summit of BRICs nations later in the day.

Market speculation has been rising that countries may be looking to diversify reserves portfolios away from U.S. Treasuries in the future.

The dollar reversed a climb from earlier in the day, when it hit its highest in nearly four weeks against the euro after falling global share prices had increased risk aversion and prompted safe-haven bids for the U.S. currency.

"Stocks had a terrible day yesterday and again today, which had helped the dollar, but the Russia comments before the BRICs meet is weighing on the dollar," said Johan Javeus, chief currency strategist at SEB Bank in Stockholm.

European shares fell 0.3 percent in early trade, extending steep losses from the previous day, boosting the yen across the board. Markets also awaited a reading of German economic sentiment from the ZEW due at 0900 GMT. Expectations are for a rise in the sentiment index to 35.0 in June from 31.1 in May.

By 0749 GMT, the euro traded 0.6 percent higher around the day's high of $1.3876. The pair recovered from $1.3748 touched on trading platform EBS earlier in the day, its lowest since May 21.

Losses versus the euro helped to push the dollar index down 0.6 percent.

BRICS IN FOCUS

The dollar traded 1.3 percent lower at 96.56 yen, after falling as low as 96.08 yen on EBS in early European trade.

The euro fell 0.7 percent, while sterling and the Australian and New Zealand currencies each fell roughly 1 percent against the Japanese currency.

Traders offered limited initial reaction to The Bank of Japan's upgrade of its economic assessment on Tuesday. This came at the end of a two-day monetary policy meeting, where it kept interest rates at 0.1 percent, as widely expected.

Medvedev's comments came after Russian Finance Minister Alexei Kudrin at the weekend said the dollar's status as the world's main reserve currency would unlikely change in the near term, clouding the market's understanding of Moscow's position.

The market is looking to the outcome of the first summit among leaders of Brazil, Russia, India and China -- the BRIC group of emerging powers -- later in the day in the Russian city of Yekaterinburg, which is expected to discuss the status of the dollar as a reserve currency.

Any negative remarks on the dollar from leaders of the BRIC nations, particularly from China, which holds the world's largest pile of currency reserves, would hurt confidence in the U.S. currency, analysts said. (Reporting by Naomi Tajitsu; editing by Mike Peacock)

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