Dollar gains on European banks concern

09:06, June 02, 2010      

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The dollar extended gains against the euro on Tuesday as the market was concerned about the health of European banks.

The euro refreshed four-year lows against the green back on Tuesday. The 16-nation currency fell to as low as 1.2111 dollars during trading before recovering some of the losses.

European Central Bank said late Monday that although it estimates that potential loan write-down for the continent's bank system will peak this year, "it is probable that loan losses will remain considerable in 2011 as well."

The ECB warned that euro zone banks face up to 195 billion euros in a "second wave" of potential loan losses over the next 18 months due to the financial crisis. The ECB said it had increased purchases of euro zone government bonds.

The euro fell more than seven percent in May, which the sixth consecutive monthly decline and extended the longest losing streak even since the currency was introduced in 1999. Investors are also worried about the euro zone recovery, as latest data showed that manufacturing activity expanded in May at a considerably more sluggish pace than April's 46-month high.

Meanwhile, upbeat economic data attracted some investors from the safe haven of the dollar, which boosted other major currencies.

The Department of Commerce reported that construction spending jumped 2.7 percent in April, far exceeding economists' expectations for a 0.2 percent gain and also the largest monthly increase in nearly ten years.

Also, the Institute for Supply Management's survey of purchasing managers reported a May reading of 59.7, which fell from April's level of 60.4 but was still slightly stronger than market expectation.

Canada on Tuesday raised its key interest rate by a quarter point to 0.50 percent, a move making it the first of the G7 major industrialized countries to begin hiking interest rates following the global financial crisis.

The rate increase was expected in financial markets and the Bank of Canada gave no indication if it would further increase interest rates. The Canadian dollar was higher against the dollar after the move.

The euro slipped to 1.2253 dollars in late New York trading from 1.2305 dollars late Monday, and the British pound rose to 1. 4658 dollars from 1.4545 dollars.

In other trading, the dollar rose to 91.24 Japanese yen from 91. 07 yen late Monday, edged up to 1.1562 Swiss francs from 1.1550 francs, and rose to 1.0505 Canadian dollars from 1.0457 late Monday.



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