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FOREX-Dollar gains broadly as risk appetite fades

Published 11/12/2009, 04:06 PM
Updated 11/12/2009, 04:09 PM
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* Dollar higher as investors square positions; stocks fall

* Comments about global growth spur some risk aversion

* APEC ministers to call for "market-oriented" forex rates

* U.S. jobless claims fall; tepid demand at Treasury sale (Updates prices, adds detail)

By Steven C. Johnson

NEW YORK, Nov 12 (Reuters) - The dollar rose broadly on Thursday as several policymakers around the world warned the economic recovery was fragile, prompting investors to take profits on gains in higher-yielding currencies and assets.

U.S. crude oil shed more than $2 a barrel and stocks tumbled, ending the Dow industrials' six-day winning streak, as investors pared back risky trades and bought back some of the cheaply-borrowed dollars used to fund them.

The euro, after coming within a whisker of its 2009 peak a day ago, shed more about two cents to trade at $1.4840, down 1 percent on the day.

Overnight comments from Chinese Premier Wen Jiabao, who said recovery would be bumpy and pledged to maintain active fiscal and loose monetary policies, unnerved investors a day after China posted strong industrial output numbers, analysts said.

"These comments and others helped convince people who were long equities and commodities to square positions, but we don't think this renewed dollar advance is sustainable," said Michael Woolfolk, currency strategist at BNY Mellon in New York.

He said another euro "run above $1.50 is inevitable, and it may well be a sustained run until the Federal Reserve signals it is getting ready to raise interest rates" from record lows.

Traders said some of the euro's struggles were tied to a report that a German bank rescue fund was likely to bolster the capital of troubled regional lender West LB.

Elsewhere, European Central Bank governing board member George Provopoulos said a global recovery was still fragile and should not be taken for granted.

The dollar rose 1 percent to 1.0177 Swiss francs and 0.6 percent to 90.38 yen. Sterling was little changed at $1.6575.

Commodity-linked currencies, top performers in recent months, also struggled as oil prices fell. The dollar rose 1 percent against the Canadian currency to C$1.0560 while the Australian dollar fell 0.9 percent to $0.9224.

JOBLESS CLAIMS DOWN, TREASURY DEMAND EYED

Data on Thursday showed first-time claims for U.S. jobless benefits fell in the latest week, initially prompting some to buy the dollar against the yen.

Positive news usually prompts investors to shun dollars for higher-yielding currencies on the view that the economy is improving, but analysts said profit-taking won out Thursday.

Some said investors also may have bought dollars in hopes that good U.S. data will spur the Fed -- the U.S. central bank -- to hike benchmark interest rates sooner rather than later, making dollars more attractive.

One potential source of worry to that outlook could come from foreign demand for U.S. Treasury debt. A record $16 billion sale of 30-year debt got a fairly cool reception on Thursday, with bidding the lowest since May.

Some analysts said that may indicate investors are increasingly anxious at buying long-dated Treasuries given fears that the dollar will continue to weaken.

"It's very interesting to see how high demand is at the short end but not at the long end," said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London.

"A few more results like that" in sales of long-dated Treasuries "should not bode well for the dollar," he said.

Expectations of currency appreciation in Asia could also renew dollar pressure, analysts said. The latest draft of a post-meeting communique from leaders of the Asia-Pacific Economic Cooperation Forum called for "market-oriented" exchange and interest rates, effectively an argument for local currencies to appreciate against the dollar.

U.S. President Barack Obama visits China next week, and market participants expect currencies to be discussed.

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