Dollar slides to 2009 low versus euro as stocks rebound

By Wanfeng Zhou

NEW YORK (Reuters) - The dollar on Monday fell to its lowest level this year against the euro as a rebound in U.S. stocks revived risk appetite and eroded the greenback's safe-haven appeal.

U.S. stocks edged higher, erasing early-session losses after a decision by the United States to impose special duties on Chinese tires sparked concerns of an escalating global trade dispute.

"It's the whole risk-on, risk-off story back again," said Jacob Oubina, currency strategist at Forex.com in Bedminster, New Jersey. "We had risk come off a little bit overnight with the China-U.S. trade news. Now (U.S. stocks) are managing to eke out a rally here and that's keeping the euro supported."

In late New York trading, the euro was up 0.4 percent on the day at $1.4622, rebounding from a session low of $1.4514. It climbed as high as $1.4652, the pair's highest level since December 2008, according to Reuters data.

Kathy Lien, director of currency research at GFT Forex in New York, said the single euro zone currency also recovered from losses on buying of the euro against the pound after Moody's said its outlook for UK banks remained negative.

Sterling fell 0.6 percent against the dollar to $1.6566, while the euro rose 0.9 percent against the pound to 0.8825.

The ICE Futures U.S. dollar index, which measure the greenback against a basket of six currencies .DXY, swung between gains and losses, but last traded up 0.1 percent at 76.657, marking the first gain in seven sessions. The index declined to 76.457 on Friday, its lowest in nearly a year.

Against the yen, the dollar rose 0.3 percent to 90.93 yen, pulling back from an early fall to 90.18 yen, its lowest since February, according to Reuters data.

CHINA DISPUTE

Early trading was dominated by the U.S.-China trade dispute after President Barack Obama on Friday announced safeguards on tire imports from China that would put additional duties of 35 percent on Chinese-made tires from September 26.

China struck back, announcing its own anti-dumping investigations of U.S. motor vehicles and chicken products.

The dispute raised concern and increased uncertainty that the fragile global economic recovery could be derailed, lowering demand for risky assets overnight. But strategists said it was unlikely to put a lasting hole in the market's appetite for risk.

The dollar has come under heavy pressure this month as optimism about a global economic recovery encouraged investors to move out of safe havens into riskier investments.

Concerns about the fiscal deficit in the United States, speculation that the dollar was replacing the yen as a funding currency and talk of Asian central banks diversifying away from the greenback added to dollar selling.

"The sentiment is still dollar-negative. What the market is really concerned about is the ability or the willingness of the U.S. authorities to deal with the fiscal problems," said Vassili Serebriakov, currency strategist at Wells Fargo in New York. "Dollar weakness is probably exacerbated by the breach of important technical levels last week."

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