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Tuesday January 27, 2009 - 00:27:59 GMT
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FOREX NEWS-U.S. dollar, yen fall as risk appetite edges up

Mon Jan 26, 2009 4:22pm EST

* Euro hits one-week high vs dollar as risk aversion ebbs

* Barclays profit forecast boosts sterling

* U.S. home sales up, though driven partly by foreclosure (Recasts, updates prices, adds comment, changes byline)

By Gertrude Chavez-Dreyfuss

NEW YORK, Jan 26 (Reuters) - The dollar fell against the euro and sterling on Monday, as investors' risk appetite improved after British bank Barclays said it would report a 2008 pretax profit and U.S. data showed a jump in home sales.

Stocks in Europe and on Wall Street advanced and the dollar rose against the yen as investors waded back into risky trades after taking cover last week in the wake of banking sector worries and signs of a deepening global recession.

The dollar has been the main beneficiary of the economic downturn around the world. Investors have viewed the currency as a safe haven amid expectations the United States, the first major economy to hit recession, will be the first among industrialized countries to emerge out of the economic slump.

"The positive news from Barclays this morning gave the market's risk appetite a boost and that's why we have seen the euro gain a bit, including the dollar versus the yen, and sterling," said Joe Francomano, vice president of foreign exchange at Erste Bank in New York.

In addition to forecasting a 2008 profit, Barclays (BARC.L: Quote, Profile, Research, Stock Buzz) said it would not need new funding. That news overshadowed announcements of jobs cuts at Caterpillar (CAT.N: Quote, Profile, Research, Stock Buzz), General Motors (GM.N: Quote, Profile, Research, Stock Buzz) and Home Depot (HD.N: Quote, Profile, Research, Stock Buzz).

In late afternoon trading, the euro was last up 1.4 percent at $1.3166 <EUR=> after rising to $1.3209, a one-week high, according to electronic platform EBS. The euro rose 1.6 percent to 117.18 yen <EURJPY=>, off a roughly seven-year low near 112 hit last week.

Francomano said the euro accelerated gains against the dollar after it broke a key $1.3150 level, although by late trading the euro zone single currency had fallen from its highs. The Erste trader suggested using upside moves in the euro as an opportunity to sell for profit.

The dollar rose 0.2 percent against the yen to 89.01 yen <JPY=>.


Analysts, however, were unsure how long the market's upbeat mood would last. Banks, retailers and manufacturers announced thousands of job cuts on Monday and worries about global economic health remained acute. For more see [ID:nLQ186557].

The International Monetary Fund slashed its forecast for 2009 global growth to 0.5 percent from 2.2 percent in its last economic outlook in November, a Group of 20 (G20) finance official told Reuters on Monday.

While the IMF now reckons the U.S. economy will shrink 1.6 percent this year after an earlier forecast of a 0.7 percent drop, the fund expects it to grow 1.6 percent in 2010.

"The fundamental picture continues to point to a firmer dollar," said Meg Browne, currency strategist at Brown Brothers Harriman in New York. "So far, January U.S. data, while still quite weak and still just one month's data, have come in somewhat better than expected."

For instance, data on Monday showing a surprise 6.5 percent rise in sales of existing U.S. homes last month boosted the dollar against the yen. The headline figure exceeded market forecasts, though the increase in sales was mainly attributed to foreclosure transactions.

"That doesn't mean the U.S. economy is bottoming but is a contrast to the euro zone and UK. In this environment, euro rallies are unlikely to be sustained for long," Browne said.

Earlier, sterling was pressured after Bank of England Monetary Policy Committee member David Blanchflower was quoted on Sunday as saying British interest rates still had a way to go if they were to follow the United States [ID:nLO542246].

But investors bought sterling back after the Barclays news. Sterling rose more than 1 percent to $1.3960 <GBP=>, above last week's 23-year low of $1.3502, according to Reuters data.

The Fed begins a two-day policy meeting on Tuesday, and with rates already near zero, traders will await the U.S. central bank's policy statement for pointers on what assets the Fed may purchase to ease credit strains, analysts said. (Additional reporting by Steven C. Johnson; Editing by James Dalgleish)

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