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Monday April 6, 2009 - 20:49:45 GMT
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FOREX NEWS-US dollar advances broadly as global stocks fall

Mon Apr 6, 2009 3:50pm EDT

* U.S. dollar rises above 101 yen, highest since Oct 2008

* Drop in stocks rekindles risk aversion

* Soros says US dollar may be replaced as reserve currency (Adds comments, details, updates prices)

By Vivianne Rodrigues

NEW YORK, April 6 (Reuters) - The U.S. dollar rose broadly on Monday, as stocks in Europe and on Wall Street fell on fading optimism about a global economic recovery, prompting investors to buy the greenback as a safe haven.

The yen fell earlier to a nearly six-month low versus both the dollar and the euro, with investors selling the Japanese currency in response to a rise in global stocks, particularly the Nikkei index. But as equities fell, the yen trimmed losses versus the dollar and turned higher against the euro.

"When equities move up, euro/dollar goes higher, and when stocks move down, euro/dollar goes lower," said Greg Salvaggio, senior vice president for capital markets at Tempus Consulting in Washington. "But the dollar's gains versus the euro are nothing to get excited about. The euro is consolidating between $1.31 to $1.36."

Salvaggio said the euro/dollar pair will keep range trading until there is evidence that the global economy has bottomed.

"We will have to see three or four months of data to judge whether the worst is behind us," he said.

In late afternoon trading in New York, the euro fell 0.6 percent versus the dollar to $1.3399 <EUR=>. The ICE Futures' dollar index, a gauge of the dollar's value against six major currencies, was 0.7 percent higher at 84.73 .DXY.

Demand for dollars tends to rise in response to bad news because investors view it as the safest store of value at a time when economies around the world are contracting.

The dollar rose earlier to 101.45 yen <JPY=>, the highest level since October 2008, according to Reuters data. It last traded at 100.97, up 0.7 percent on the day.

The move above 101.00 yen was considered technically significant by some analysts but Barclays Capital said in a note the dollar and the yen are likely to trade within a 95 to 100 range. Still they added, any moves in the spot exchange rate, such as today's break above this range, "provide opportunities" for investors to sell on rallies.

FX MARKET VULNERABLE

The euro <EURJPY=R> was little changed against the yen at 135.32 but earlier it rose to 137.43, its strongest in more than five months. Sterling slid against the dollar, erasing earlier gains that had propelled it to a two-month high against the U.S. currency. The pound, which is also highly sensitive to equity market moves and investor sentiment along with the euro, was last at $1.4725 <GBP=>, down 0.7 percent.

Analysts said the market remained vulnerable to swings in risk appetite and warned it may be premature to assume that the worst of the global credit crisis was over after U.S. stocks .DJI rallied last month.

The recent rally in both equities and currencies has been fueled more by faith than fact, Boris Schlossberg, director of currency research at GFT Forex, said in a note.

"It is difficult to imagine how the four-week rally could maintain this type of pace against the current fundamental backdrop," he added. As the week progresses, Schlossberg says equities are likely to correct, taking risk currencies down with them.

Adding to the dollar's safe-haven allure were comments by billionaire investor George Soros that the U.S. economy is in for "a lasting slowdown" and won't recover this year. He also said "the banking system as a whole is basically insolvent."

But Soros also told Reuters Financial Television the U.S. dollar may eventually be replaced as world reserve currency, possibly by the International Monetary Fund's Special Drawing Rights. For story click on [ID:nN06386461].

Investors now are turning their attention to the few U.S. economic highlights of the week, with reports on trade, wholesale inventories and import prices still due. The Federal Reserve is also going to release minutes of its March interest rate-setting meeting.

(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by James Dalgleish)

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