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Friday, May 1, 2009

U.S. dollar, yen slide as risk appetite rises

NEW YORK, May 1 (Reuters) - The U.S. dollar and yen fell on Friday as increasing risk appetite sparked by better-than-expected U.S. economic data pared demand for both currencies as a refuge against the global slowdown. The dollar fell for a fourth straight session versus the euro, while the yen dropped to a two-week low against both the euro and dollar, with volumes thin given the May Day holiday in Europe. Higher-yielding currencies such as the Australian and New Zealand dollars were some of the biggest movers on the day, moving in tandem with higher U.S. stocks.

New data on Friday reinforced the view that the worst of the recession may have passed, making investors more comfortable with risk-taking. Reports showed U.S. consumers felt more upbeat about the economy in April while a key gauge of manufacturing suggested the sector was gradually emerging out of a prolonged recession. The numbers were consistent with the Federal Reserve's less bleak outlook on the U.S. economy issued on Wednesday.

"Risk appetite is definitely coming back and the data this morning was phenomenal," said Melvin Harris, a market analyst at Advanced Currency Markets in New York.

"The reports are supportive factors to truly build the case that while things are not completely better yet, we are moving in a positive direction. Economic fundamentals will become more important in the next couple of months."

In late afternoon trading, the euro rose 0.3 percent against the dollar to $1.3262 and touched a two-week high against the yen at 132.33 yen . The euro last traded at 131.64, up 1.0 percent from late on Thursday.

On the week, the euro was up 2.8 percent versus the yen.

The ICE Futures' dollar index, a measure of the greenback's value versus six major currencies, fell 0.3 percent to 84.569 .DXY.

YEN FALLS; AUSSIE, KIWI RISE

The dollar, however, gained 0.7 percent against the yen to 99.28 , having hit a two-week high around 99.58 yen, according to Reuters data.

The Australian dollar rose 0.7 percent against the U.S. dollar to US$0.7299 . The New Zealand dollar also climbed, up 0.8 percent against the greenback to US$0.5697 , while the Canadian dollar was also firmer, with the U.S. dollar down 0.7 percent at C$1.1849 .

Investors were also encouraged by data overnight showing Chinese manufacturing gained further momentum in April, as well as by Friday's better-than-expected UK manufacturing survey.

Optimism was further stoked in the United States after St. Louis Fed President James Bullard said on Friday the U.S. unemployment rate will likely crest above 9 percent but not reach levels set in the early 1980s.

Still investors remained cautious as the financial markets remain in an uncertain environment. Next week's announcement of the outcome of U.S. stress tests on top banks is an unknown.

Results from tests of the health of the 19 largest U.S. banks are expected Thursday, May 7, and will include information on estimates of losses for certain categories of loans and resources to absorb those losses. [ID:nWAT011386]

Sentiment also remains vulnerable to any hint on whether a spreading flu outbreak may turn into a pandemic that would be severe enough to dent global economic recovery.

Investors will also be looking to next week's U.S. nonfarm payrolls report for April, another potential risk for the markets. Analysts are expecting job losses of 630,000 last month, according to a Reuters poll.

"Although the pace of U.S. economic decline should be considerably less severe in the second quarter, the best contemporary tracking measures still point to a decline," said Avery Shenfeld, senior economist at CIBC in Toronto.

"How hard can we cheer about a more cushioned fall when another 600,000 drop in non-farm payrolls shows up in Friday's report?"

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