Thursday August 21, 2008 - 09:12:57 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar hauled off peaks as US financial worry resurfaces
* Dlr index down 0.4 percent at 76.591 .DXY
* Fannie/Freddie concerns, rising oil hurt
* Euro zone business activity stabilises
(Changes dateline, byline, adds quotes, updates prices)
By Veronica Brown
LONDON, Aug 21 (Reuters) - The dollar fell on Thursday,
pulling back sharply from this week's eight-month highs versus a
basket of currencies as inflamed concerns about the U.S.
financial sector and rising oil put a chink in its rally.
Persistent worries about the viability of U.S. mortgage
finance giants Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) and
the risk that could pose to an already battered financial system
has injected caution into any notion that the dollar's recent
climb was a one-way affair.
To add to the mix, the Financial Times reported that Lehman
Brothers (LEH.N: Quote, Profile, Research, Stock Buzz) had held talks to sell up to half its shares to
China's CITIC Securities as well as state-owned Korea
Development Bank, but both investors walked away saying the
price was too high.
A Lehman spokeswoman declined to comment on the report.
"There are renewed concerns regarding the financial sector
and some other investment banks are also grabbing the headlines
so the dollar is seeing a corrective pullback," said Ian
Stannard, senior currency strategist at BNP Paribas.
"One of the characteristics of this dollar move so far is
that there hasn't been a correction," he said.
Crude oil rose more than $1 to 116.82 a barrel CLc1 for a
third straight day of gains, pulling gold prices <XAU=> up over
the $800 an ounce mark.
Data on Wednesday showed euro zone business activity
unexpectedly stabilised at weak levels in August, while oil's
sharp pullback from record highs took the pressure off input
But Stannard said the respite given by the figures would not
last, given that the euro zone is perceived to be in the early
stages of its downturn.
The dollar index, which measures the dollar's value against
a basket of six currencies, slipped 0.4 percent to 76.591 .DXY
moving well away from an eight-month peak reached on Tuesday at
The euro rose 0.4 percent to $1.4798 <EUR=>, staying above a
six-month low of $1.4631 hit on Tuesday, according to Reuters
data. But the European single currency was 8 percent below a
record peak of $1.6038 hit a little over a month ago.
The dollar fell one percent to 108.69 yen <JPY=>, retreating
from a seven-month high of 110.67 yen hit last week. The euro
was down 0.5 percent at 160.93 yen <EURJPY=>.
CORRECTION, THEN HIGHER
The dollar has soared this month as investors unwound
massive positions favouring the euro, higher-yielding currencies
and commodities -- taken on bets that the global economy would
withstand the U.S. downturn and credit crisis.
But the pace of the U.S. currency's rise is seen slowing as
background worries on the U.S. economy continue to bite, while
chart patterns are also suggesting a brief reversal.
Background factors supporting further dollar rises remain
intact as slowing global growth is expected to lead to interest
rate cuts by central banks outside the United States, such as
the European Central Bank, the Bank of England and the Reserve
Bank of Australia.
The Federal Reserve is seen as more likely to raise interest
rates next year to fight inflation. Data showed on Tuesday that
U.S. producer prices jumped in July at the fastest annual rate
in 27 years, almost reaching a double-digit pace.
"Going forward, we view recent gains in the US dollar as
sustainable. Against the backdrop of housing market-related
concerns, worsening growth expectations outside the US, the
outlook for yields, soft commodity prices and strong capital
flows are all dollar-supportive," UBS strategists said.
(Reporting by Veronica Brown; Editing by Mike Peacock)
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