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FOREX-Dollar rebounds vs euro as risk appetite cools

Published 10/22/2009, 09:31 AM
Updated 10/22/2009, 09:36 AM
EBAY
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* Dollar up, pulls away from 14-month low vs euro

* Weaker stocks cool risk demand, supporting U.S. currency

* Euro remains near $1.50, renewed rally expected

* China stimulus fears briefly rattle market

(Updates prices, adds U.S. data, comments, changes byline, dateline)

By Steven C. Johnson

NEW YORK, Oct 22 (Reuters) - The dollar rose on Thursday, rebounding from a 14-month low against the euro, as disappointing corporate earnings dented demand for higher yielding currencies and assets.

Commodity-linked currencies, such as the Australian and Canadian dollars, retreated from around 15-month peaks while European shares fell, and oil prices shed 1 percent.

Disappointing earnings from eBay Inc on Wednesday and Thursday's below-forecast results from Ericsson, cooled some of the recent optimism about a global recovery.

That caused investors to take profits on recent gains in the euro and other currencies, which have rallied against the dollar on the view that U.S. interest rates will stay at record lows well into 2010, leaving Asia to lead economic recovery.

Low rates make the dollar less attractive to investors than higher-yield currencies more closely correlated with recovery.

"We've seen a big move across a host of assets lately and a lot of people are looking for when we're going to top out, so there's some profit-taking today," said Camilla Sutton, senior currency strategist at Scotia Capital in Toronto. But Sutton also said the theme remains dollar-negative.

Michael Klawitter, senior currency strategist at Commerzbank in Frankfurt, said, "the euro's proximity to $1.50 suggests that the market is not taking the current correction too seriously."

The euro was last down 0.1 percent at $1.4999 after hitting a 14-month peak of $1.5046 Wednesday. The dollar rose 0.5 percent to 91.46 yen and sterling fell 0.3 percent to $1.6553 off Wednesday's one-month high above $1.66.

Sterling's dip stalled a nine-day rally, and data showing UK retail sales were flat in September helped slow the pound's upward momentum.

Against the Canadian dollar, the greenback rose 0.9 percent to C$1.0517, off a 15-month low near C$1.02 last week.

CHINA STIMULUS FEARS

A rise in first-time applications for U.S. jobless benefits showing the U.S. labor market remains weak, further denting risk appetite.

Earlier, data showing China's economy grew 8.9 percent in the third quarter prompted some concern that authorities may start to unwind some emergency stimulus spending, giving the dollar a modest boost.

But other analysts said the data was not strong enough to trigger policy tightening.

"There are fears that when there is a removal of stimulus the underlying fundamentals won't be enough to drive global growth, but the truth is there is a lot of growth coming out of China and that whole region," Sutton said.

The euro rose 0.4 percent to 10.315 Swedish crowns after Sweden's central bank held interest rates at a record low 0.25 percent and forecast they would stay near zero for another year.

The decision was broadly expected, but analysts said there was some surprise at its move to pump another 100 billion Swedish crowns ($14.5 billion) into banks with 11-month fixed-rate loans.

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