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FOREX-Dollar up sharply, helped by Kudrin comments

Published 06/15/2009, 04:29 AM
Updated 06/15/2009, 04:32 AM

* Dollar gains; dlr index up 0.9 percent, euro/dlr down 1 percent

* Russia's Kudrin sees no change in dollar dominance

* G8 finance ministers consider exit strategies

* Investors look ahead to first BRIC summit on Tuesday

(Updates prices, changes byline, dateline; previous TOKYO)

By Jessica Mortimer

LONDON, June 15 (Reuters) - The dollar rose broadly on Monday, boosted by comments from Russia's finance minister on the U.S. currency and as investors continued to take profits on other currencies which climbed sharply early last week.

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.

The comments alleviated concern that central banks around the world are diversifying their foreign exchange reserves away from the dollar, though investors are awaiting a summit of leaders of Brazil, Russia, India and China (BRIC) on Tuesday for any further comments on the issue.

"The dollar is stronger across the board and this is predominantly to do with the comments made by Russia's finance minister at the G8," said Michael Klawitter, senior currency strategist at Dresdner Kleinwort in Frankfurt.

"For a more lasting decline to take place in the euro against the dollar, however, these concerns about central bank reserve diversification would have to be cleared up," he said.

Other major currencies meanwhile continued to succumb to profit-taking after rising sharply early last week on optimism that the global economy is beginning to recover from a deep recession.

Sharp falls in oil prices weighed on commodity-related currencies such as the Australian and Canadian dollars, while the euro remained under pressure following very weak euro zone industrial production data last week.

Euro zone employment data is due for release at 0900 GMT.

At 0803 GMT, the dollar jumped 0.9 percent against a basket of currencies to 80.820.

The euro fell 1 percent against the U.S. currency to $1.3876 . It also lost 1.1 percent against the Japanese yen to 136.31 yen.

The Australian dollar fell 1.4 percent to $0.8011, while the U.S. dollar gained 1 percent against the Canadian dollar to C$1.1296.

BRIC AWAITED

The G8 finance ministers' meeting focused on how finance ministers might unwind some of the drastic steps taken to fight the credit crisis once a recovery got underway.

Some traders said a cautious tone from the meeting helped temper recent optimism about the economy, encouraging bets in riskier assets to be cut further and supporting the U.S. dollar.

"The market began taking profits on gains in emerging market currencies as well as higher-yielding currencies before the G8 meeting, and this is continuing as many investors still have their doubts about the recent excessive optimism over an economic recovery," said a senior trader at a Japanese bank in Tokyo.

Focus will now centre on the first summit of BRIC leaders on Tuesday in the Russian city of Yekaterinburg, where discussions may include foreign reserve diversification.

But a top Kremlin aide said leaders of the BRIC countries do not plan to discuss prospects for new global reserve currencies at their meeting.

Russia holds about 30 percent of its $404.2 billion foreign exchange reserves in 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.

Repeated moves among the so-called BRIC nations to buy bonds issued by the International Monetary Fund have raised concerns over the U.S. dollar's status as the world's main reserve currency.

(Additional reporting by Satomi Noguchi in Tokyo)

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