Wednesday August 26, 2009 - 20:26:49 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar gains as risk trade takes a breather
Wed Aug 26, 2009 4:21pm EDT
* High-yielders slip; global, U.S. stock markets mixed
* U.S. new home sales, durable goods orders rose in July
* China plans to curb investment hit global growth hopes
* German Ifo sentiment poll hits highest in nearly 1 year (Updates prices)
By Steven C. Johnson
NEW YORK, Aug 26 (Reuters) - The dollar rose on Wednesday as news China would restrict redundant investment underscored concern about a global recovery and tempered the positive impact of data showing a jump in new U.S. home sales.
Reports China intends to curb excessive investment in a range of industries "hurts the strong global growth outlook and is one of the things moving the dollar today," said Chuck Butler, president of Everbank World Markets in St. Louis. For more, please see [ID:nPEK160728]
Investors tend to buy the dollar and yen as safe havens or unwind trades in higher-yielding assets financed with the U.S. and Japanese currencies when recovery optimism fades.
Two reports offered some encouragement about the health of the U.S. economy. A rise of 9.6 percent in new homes sales in July was the fastest pace in nearly a year. [ID:nN26261432]
U.S. durable goods orders also rose in July, but a key measure of business demand -- non-defense capital goods, excluding aircraft -- fell, reminding investors the economy still faces huge challenges. [ID:nN26259327]
Analysts also said traders were using mixed signals on global growth to lock in profits booked earlier this week as foreign currencies rose against the dollar.
The euro was down 0.3 percent at $1.4249 EUR= and 0.4 percent at 134.14 yen EURJPY=.
The dollar was little changed at 94.15 yen JPY=. Sterling fell to a six-week low against the dollar and was last off 0.6 percent at $1.6242 GBP=. The euro hit a 2-1/2-month high against the pound above 88 pence EURGBP=.
High-yielding and commodity-linked currencies such as the Australian dollar fell after European equities snapped a four day winning streak led by commodity stocks. The U.S. dollar rose 1 percent against its Canadian counterpart to C$1.0973 CAD=.
Some analysts said the recent trend that has seen the dollar weaken on good economic news may be starting to fade.
"The new home sales data was good, there's no doubt about it. The question is, are signs that the U.S. economy is starting to bottom good for the U.S. dollar or for other currencies," said David Watt, senior strategist at RBC Capital Markets in Toronto.
But he also said it will take more evidence that a U.S. recovery is on track to answer this question.
Earlier in the session, the euro got a brief boost after the Munich-based Ifo think-tank's business climate index rose in July. [ID:nLQ735962]
Andrew Wilkinson, market strategist at Interactive Brokers in Greenwich, Connecticut, argued that dollar weakness may be a "longer-run certainty," but it does not seem to fit in the current environment when a global recovery remains shaky.
"We would not be surprised to see more investors throw in the towel on the euro in favor of a dollar that may yet push back below $1.40 before August is through," he added.
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