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NEW YORK: The US dollar recouped early losses and traded mainly higher on Wednesday, shaking off a record plunge in US consumer prices, as currency traders flocked to safety amid renewed turmoil in financial markets.
Analysts said the steep falls in global stock markets and worries about a downward spiral in the global economy prompted a rush into the US and Japanese currencies despite weak data from the United States.
The euro dipped to 1.2508 dollars at 2100 GMT, after jumping as high as 1.2748 dollars, and compared with 1.2621 dollars in New York late on Tuesday.
The dollar fell to 95.77 yen from 96.89 yen on Tuesday.
"If risk aversion remains the underlying market theme accordingly, then we may expect the yen to stand out as its major beneficiary in the foreign exchange markets - which presents a rather problematic situation for the Japanese," said Neil Mellor at Bank of New York Mellon.
Andrew Busch at BMO Capital Markets noted that the dollar is not far behind in benefiting from safe-haven flows, amid fears of a devastating global deflationary environment.
"Currency markets are still vacillating in ranges with US dollar benefiting from the extremely negative psychological environment," he said.
"However, the moves are muted compared to what we've experienced over the last two months."
Highlighting fears about a weak economy and deflation, the US consumer price index (CPI) plunged 1.0 percent in October - the steepest one-month fall since the data was first published in 1947.
Slower inflation gives the Fed more room to lower US interest rates even further to try to ward off a deep recession. Normally lower rates would make a currency less attractive, but the financial turmoil has shifted the outlook for many.
Even with the federal funds rate at a record low of 1.0 percent, some Fed members see even more rate cuts to help revive a moribund economy, according to minutes released from last month's policy meeting.
Some Fed members "suggested that additional policy easing could well be appropriate at future meetings," the minutes showed.
"In any event, the committee agreed that it would take whatever steps were necessary to support the recovery of the economy."
Meanwhile, markets were closely watching developments in the car sector as the heads of the Big Three US automakers - General Motors, Ford and Chrysler - appeal to Congress for loans to prevent their industry from collapsing.
Treasury Secretary Henry Paulson had on Tuesday indicated unwillingness to allocate funds from a financial sector bailout to the manufacturing sector.
"The troubled US automotive industry poses a large economic and potentially systemic risk, so a lack of a rescue plan is bad news for risky assets in the near term," Barclays Capital analysts said in a research note on Wednesday.
Elsewhere, the British pound was steady on news that Bank of England policymakers voted 9-0 to slash British interest rates by a third to 3.00 percent, the lowest level in more than half a century, according to minutes of their November 6 meeting.
Economists saw the deep 1.25 point rate cut as a sign of a deep recession ahead for Britain.
In late New York trade, the dollar stood at 1.2119 Swiss francs after 1.2026 on Tuesday. The pound was at 1.4960 dollars after 1.4963. - AFP/de
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