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Dollar slips vs. rivals as risk appetite revives

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Dollar slips vs. rivals as risk appetite revives
9:27a ET March 8, 2010 (MarketWatch)

NEW YORK (MarketWatch) -- The dollar lost ground versus the euro and most major rivals on Monday after French President Nicolas Sarkozy indicated that Greece's euro-zone partners stood ready to provide help if needed to avoid a default.

The news contributed to a general rise in investors' interest in riskier, higher-yielding currencies to the dollar's detriment, strategists said.

The euro rose to $1.3683 from $1.3626 in late North American trading on Friday.

The dollar index , which measures the U.S. unit against a trade-weighted basket of six major currencies, fell to 80.164 from 80.430 late Friday.

The dollar was little changed versus its Japanese counterpart, changing hands at 90.34 yen.

Meanwhile, the high-yielding Australian dollar rose 0.5% against the U.S. unit, while the greenback fell 0.8% against the New Zealand dollar.

The aussie also jumped about 0.9% versus the yen.

"The 'safer' world this week is setting off a domino-style resumption of risk taking," said Andrew Wilkinson, senior market analyst at Interactive Brokers. "The yen and the dollar are both falling as appetite for riskier bets in the shape of natural resources, emerging stock markets and riskier currencies picks up."

Sarkozy, after a meeting with Greek Prime Minister George Papandreou, said Sunday that euro zone members would do what is necessary to help Greece and said that detailed measures are being discussed.

Also, remarks by German officials and news reports indicated European support for the creation of a European institution modeled on the International Monetary Fund that would help enforce budget rules within the euro zone and provide a backstop in the event of future debt crises.

The euro "will react positively to this news," wrote strategists at BNP Paribas. "Now as budget consolidation measures have been introduced allowing bond spreads to come down, there will be a period of calm. The next risk is on the social side when the budget cuts reduce income and increase unemployment."

A push back above the $1.3690 and $1.3720 levels by the euro would open the way for a test of resistance at $1.3850, they said.

The dollar weakened Friday as risk appetite was aided by data that showed a smaller-than-expected drop by U.S. non-farm payrolls in February.

Chinese yuan

Currency investors were also paying attention to weekend reports that Chinese central bank Gov. Zhou Xiaochuan said China will in due course move away from its currency-exchange policy, indicating Beijing doesn't plan to keep the yuan's de-facto peg to the U.S. dollar indefinitely.

"In our view, all the official comments in favor of a cautious foreign-exchange policy, or in favor of keeping the [Chinese yuan] basically stable, are aimed at managing market expectations and making clear that the [yuan] appreciation, when it starts, will be a gradual process," Sebastien Barbe, head of emerging-markets strategy at Credit Agricole, said in e-mailed comments.

Barbe maintained his view that the yuan may resume its appreciation against the dollar in March or in the second quarter.

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