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NEW YORK: The US dollar gained on the other main currencies on Tuesday as fresh jitters over the outlook for a global economic recovery and more problems in the banking sector prompted investors to look for safe havens.
Dealers said the newfound aversion to risk pushed down global stock markets and was stoked by British plans for a major shake-up of its banking industry.
The volatile market conditions allowed gold prices to surge to a new record high of 1,088.50 dollars in New York. Normally that would indicate a weaker dollar but the greenback was helped by risk aversion.
The euro slipped to 1.4728 dollars at 2200 GMT, coming off its worst levels of the day but down from 1.4772 dollars in New York on Monday.
Against the Japanese currency, the dollar was nearly steady at 90.31 yen from 90.33 yen late on Monday.
Monetary policy was in focus after Australia raised interest rates for a second month running and the US Federal Reserve opened a two-day policy meeting.
The Australian move increased concerns that the authorities are moving towards reining in some of the massive stimulus measures implemented to combat the worst global slump in decades.
Investors are worried, however, that officials may begin withdrawing stimulus before the underlying economy is strong enough to stand on its own feet again, dealers said.
Britain on Tuesday said it would force state-rescued Royal Bank of Scotland and Lloyds to sell assets in a bid to revive the sector, injecting another 30 billion pounds into them.
The government hopes to create new banks, promote competition and guarantee more lending to businesses and individuals as a result.
Dealers said the second quarter-point Australian rate hike attracted attention after last month it became the first advanced economy to raise lending costs since the global financial meltdown, declaring the risk of a recession over.
The US Federal Reserve meanwhile is widely expected to hold its key lending rate steady in a range of zero to 0.25 percent on Wednesday while the European Central Bank and Bank of England will announce policy the following day.
Most expect no change in the level of interest rates but the markets will be looking closely to see what the central banks might have to say about the outlook and the prospect for tightening monetary policy.
Commenting on the Fed, Boris Schlossberg at Forex Capital Markets said that markets will closely scrutinise the central bank communique.
"The critical focus will be on the following phrase, 'keeping rates exceptionally low for an extended period,'" he said.
"Some analysts have predicted that the Fed will remove the word 'extended,' signalling to the market that it is laying the groundwork for possible normalisation of monetary policy in 2010."
But he noted that the Fed has never raised rates until the unemployment rate has peaked and "therefore remains constrained in its policy options by the difficult labour conditions extant in the US economy."
In late New York trade, the dollar stood at 1.0255 Swiss francs from 1.0218.
The pound was at 1.6439 dollars after 1.6404. - AFP/de
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