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FOREX-Dollar slides after China comments, U.S. data

Published 06/26/2009, 11:01 AM
Updated 06/26/2009, 11:08 AM
TWR
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* U.S. dollar falls as risk appetite rises

* China repeats call for super-sovereign currency

* US consumer spending, confidence show sign of improvement

(Adds quotes, updates prices)

By Wanfeng Zhou

NEW YORK, June 26 (Reuters) - The U.S. dollar fell against major currencies on Friday after China renewed its call to create a super-sovereign reserve currency and as improving appetite for risk dented the greenback's safe-haven allure.

China's central bank on Friday did not mention the dollar by name but said it was a serious defect that one currency should tower over all others.

Chinese officials have repeatedly expressed such concern in recent months, but analysts said the sheer size of China's holdings of U.S. debt means such remarks are likely to continue to put pressure on the dollar.

"The Chinese own a tremendous amount of U.S. Treasuries," said Fabian Eliasson, vice president of currency sales at Mizuho Corporate Bank in New York. "They are obviously worried about inflation and losing value on their investments."

By mid-morning in New York, an index that measures the dollar's performance against six major currencies fell 0.8 percent to 79.795, just shy of a two-week low of 79.562 seen this week.

The euro rose 0.7 percent to $1.4084, heading toward a two-week high of $1.4138 hit this week.

An improvement in investor appetite for risk following a series of global liquidity measures this week also pressured the dollar, analysts said.

The U.S. Federal Reserve on Thursday extended some of its emergency funding facilities and its currency swap lines with central banks around the world to provide ample U.S. dollar funds. Earlier this week, the ECB poured 442 billion euros of one-year funds into money markets.

"A pick-up in risk appetite yesterday weighed on the dollar and we are still seeing that sentiment impact flows today," said John Rivera, currency analyst at DailyFX.com in New York.

Adding to the positive sentiment was U.S. government data on Friday showing a larger-than-expected jump in personal income in May. Consumer spending, which accounts for over 70 percent of the country's economic activity, also rose in May.

Another survey showed U.S. consumer confidence rose in June to the highest since February 2008, as expectations grew that the worst economic recession since the Great Depression may be ending.

Against the yen, the dollar slipped 0.7 percent to 95.26 yen.

Traders remained cautious about more currency intervention by the Swiss National Bank to weaken its domestic currency against the euro and the dollar to protect the export-driven economy.

Data on Friday showed Switzerland's leading growth indicator, the KOF Swiss Economic Institute's economic barometer, rose to minus 1.65 in June, beating forecasts of minus 1.76.

"It is really gratifying that the main indicators have found their trough like in the rest of Europe," said Alessandro Bee, economist at Sarasin.

"The central bank will continue its course because there is still a danger of deflation and even though there is a turnaround it is at such a low level."

The euro was last down 0.3 percent against the Swiss franc at 1.5267 francs. Broad dollar weakness dragged the U.S. unit down to 1.0844 francs, down 0.9 percent on the day.

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