NEW YORK, April 2 (Reuters) - The U.S. dollar fell sharply against the euro on Thursday after the European Central Bank cut interest rates less than expected and made only vague hints that it could adopt more aggressive means to boost growth.
The dollar was broadly lower as gains in Wall Street stocks eroded the greenback's safe-haven appeal. The improvement in investors' risk appetite also sparked a rally in higher-yielding, commodity currencies like the Australian and New Zealand dollars.
U.S. stocks jumped on Thursday after world leaders at the Group of 20 summit agreed to pump an additional trillion dollars into the global economy to fight the financial crisis and on U.S. accounting rule changes aimed at giving banks flexibility when dealing with toxic assets. For more, see [ID:nN02206180].
"Risk is back on, at least for now," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey. "This has led to the risky currency assets to strengthen...and the primary risk-aversion trade to be sold. So the dollar is down and yen crosses are higher."
In early afternoon trading in New York, the ICE futures U.S. dollar index, which tracks the value of the greenback against a basket of currencies, fell 1.4 percent to 84.238 .DXY.
The euro rose 1.8 percent to $1.3475 <EUR=>, after hitting a session peak of $1.3516, and added 2.6 percent against the Japanese yen to 133.89 yen <EURJPY=>.
The ECB cut lending rates by 25 basis points to 1.25 percent, confounding expectations for a deeper cut to 1 percent. ECB President Jean-Claude Trichet refused to rule out additional rate cuts in future.
He also said officials had yet to decide on "non-standard" policy measures and would offer more details at the central bank's next policy meeting in May.
Markets were on alert for signs the ECB planned to follow other central banks by buying corporate or government debt to stimulate bank lending, a move that would likely spur growth, but could also undermine the euro through increased supply.
"The ECB is still concerned about preserving the integrity of its currency," said Boris Schlossberg, head of FX research at GFT Forex in New York. "They do not want to debase it in any way, shape or form by doing radical unconventional measures."
The dollar also gained against the yen, rising 0.8 percent to 99.37 yen <JPY=> after earlier touching 99.90, a five-month high.
Sterling rose 1.8 percent to $1.4723 <GBP=> while the Australian dollar <AUD=>, which boasts the highest interest rates among developed countries, rose 2.6 percent to $0.7164. (Additional reporting by Steven C. Johnson, Nick Olivari and Gertrude Chavez-Dreyfuss; Editing by Leslie Adler)
Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.
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