US dollar sinks against euro as risk appetite returns
Posted: 02 December 2009 0705 hrs

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NEW YORK: The US dollar sank against the euro on Tuesday as investor appetite for risk returned on the back of positive economic data around the globe and ebbing fears of a Dubai debt default.

The single European currency was at 1.5082 dollars at 2200 GMT, up from 1.5005 dollars late Monday in New York.

The US unit meanwhile was trading at 86.66 yen, up from 86.28.

The euro earlier topped 1.51 dollars for the first time since the Dubai debt crisis roiled markets late last week, a rebound that was in line with rallying equity markets.

"The risk trade is on - thanks to a sharp rise in (US) pending home sales and moves by central banks in Asia," said Kathy Lien, director of currency research at Global Futures and Forex.

The dollar, considered a safe haven in times of economic and political stress, typically loses its luster when outlooks improve.

The weakening US currency impacted the gold market, pushing dollar-priced gold futures above 1,200 dollars an ounce for the first time to record peaks.

Currency traders cheered news that Dubai World, the struggling Dubai state-controlled conglomerate that has asked for a six-month debt payment moratorium, was trying to restructure 26 billion dollars in debts of some of its companies.

The Institute for Supply Management said its US manufacturing index expanded for a fourth consecutive month in November but at a weaker pace, falling to 53.6 percent from 55.7 in October.

Despite the sharper than expected slowdown - the consensus forecast was a 55.0 percent reading - the private group said in a statement that the signs for continuing growth "are still encouraging."

Pending US home sales rose for the ninth month in a row in October, jumping 3.7 percent from September and a record 31.8 percent from a year ago, the National Association of Realtors said.

Also boosting sentiment was a report that Chinese manufacturing activity, measured by an index published by HSBC bank, picked up in November for the eighth straight month.

Manufacturing activity across the eurozone expanded more than expected in November, according to a private research firm's survey.

The 16-nation purchasing managers' index (PMI) for the manufacturing sector, published by Markit, rose to 51.2 points in November, up from 50.7 points in October. It was the second month running in which the widely watched reading has been above the crucial 50.0 boom-or-bust line.

But the euro's rising strength prompted concerned comments from the head of the eurozone finance ministers group.

Luxembourg Prime Minister Jean-Claude Juncker, Europe's longest-serving national leader and Eurogroup chief, said after a eurozone meeting in Brussels attended by a top IMF director there was agreement that the "euro is overvalued."

The yen, meanwhile, lost support after the Japanese central bank, under pressure to help boost a fragile recovery in the world's second-largest economy, said on Tuesday it would pump more than 100 billion dollars into the financial system.

In late New York trade, the dollar fell to 0.9992 Swiss francs from 1.0050 on Monday.

The pound firmed to 1.6617 dollars from 1.6441. - AFP/de