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FOREX-Dollar gains on Russia comments; BRIC meet awaited

Published 06/15/2009, 08:28 AM
Updated 06/15/2009, 08:43 AM
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* Dollar gains as Russia's Kudrin voices confidence in dlr

* EZ econ worries help push euro down 1.2 percent vs dollar

* Record fall in EZ jobs in Q1; BRIC summit awaited

(Updates prices, adds quotes)

By Jessica Mortimer

LONDON, June 15 (Reuters) - The dollar gained against a basket of major currencies on Monday after Russia expressed confidence in the U.S. currency, while concerns about the euro zone economy dented the euro.

Speaking on the sidelines of a Group of Eight finance ministers in Italy, Russia's Alexei Kudrin said the dollar's role as the world's main reserve currency is unlikely to change in the near future.

This boosted the dollar, alleviating concerns that major emerging market countries may be diversifying their reserves away from the dollar ahead of a summit of leaders of Brazil, Russia, India and China (BRIC) in Russia on Tuesday.

"Markets are pricing in dollar strength after the G8 and before the BRIC summit," UBS currency strategist Geoffrey Yu said.

"It looks like the conclusion is that there is no drastic move away from the dollar as the main reserve currency," he added.

The dollar continued to recoup some of its recent sharp falls against the euro and other major currencies, which had benefitted as optimism that the global economy was on the road to recovery boosted perceived higher risk assets.

The euro was particularly weak on concerns the euro zone economy may be lagging other countries after figures on Monday showed the euro zone lost a record number of jobs in the first quarter.

By 1212 GMT, the dollar had jumped 1 percent against a basket of currencies to 80.947.

The euro was 1.2 percent lower against the U.S. currency to $1.3846. It also lost 1.3 percent against the Japanese yen to 136.08 yen.

The euro fell on Friday after much weaker-than-expected euro zone industrial production data last week, while a German industry group warned on Monday that tight credit conditions are putting a squeeze on German firms that may hamper a recovery.

Sharp falls in oil prices also weighed on commodity-related currencies. The Australian dollar tumbled 1.4 percent against its U.S. counterpart to $0.8009 while the U.S. dollar rose 1.2 percent against the Canadian dollar to C$1.1322.

BRIC SUMMIT LOOMS

The comments by Russia's Kudrin followed those last week from the Chinese vice foreign minister that China has no intention of abandoning the dollar.

International Monetary Fund chief Dominique Strauss-Kahn also commented on the currency at the G8 meeting, saying he did not see the dollar as weak and that it "has been today correctly valued by the market".

Investors were awaiting a summit of leaders of Brazil, Russia, India and China (BRIC) in the Russian city of Yekaterinburg on Tuesday for any further comments on the issue.

"These growing signs of an indirect campaign of verbal intervention to support the dollar (supported by a wide range of key players) are having their effect on the currency markets," Bank of New York Mellon currency strategist Simon Derrick said in a note.

Russia holds about 30 percent of its $404.2 billion foreign exchange reserves in U.S. Treasuries, making it the fifth-largest holder of U.S. government debt.

China, the world's largest holder of U.S. Treasuries, has $707.9 billion, according to the most recent U.S. Treasury Department data, while Japan has $686.7 billion.

The G8 finance ministers' meeting focused on how finance ministers might unwind some of the drastic steps taken to fight the credit crisis, but the communique stressed that the recovery remains shaky. (Reporting by Jessica Mortimer; Editing by Toby Chopra)

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