U.S. dollar climbs on global economic worries

NEW YORK Fri Aug 20, 2010 4:11pm EDT

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NEW YORK (Reuters) - The U.S. dollar rose against major currencies on Friday as heightened worries about the global economy and declines in stock prices sent investors to the greenback for safety.

The euro hit a more than five-week low near $1.2660 after European Central Bank Governing Council member Axel Weber said the ECB should extend its loose monetary stance, raising fears of more economic weakness ahead in the euro zone.

Investors also dumped stocks and commodities and piled into U.S. Treasuries in a flight to quality on worries that a U.S. slowdown beginning in the second quarter this year risks dragging the global economy into a renewed slump.

"The U.S. economic data has been sub-par and ominous," said Jessica Hoversen, fixed income and currency analyst at MF Global in Chicago. "There's a growing concern that Europe and other developed countries will follow in the U.S.' footsteps."

In late trading, the ICE Futures U.S. dollar index, which measures the greenback against major currencies, rose 0.7 percent to 83.051 .DXY after hitting a one-month high of 83.304

The euro was 0.9 percent lower on the day at $1.2707, not far from a session low of $1.2664, according to Reuters data, the weakest level since mid-July.

Comments by ECB board member Weber "simply confirm what many already expect from the ECB, that the aggregate economy (despite recent solid performance from Germany) is not yet prepared to be taken off of monetary policy life support," said Sacha Tihanyi, currency strategist at Scotia Capital in Toronto.

Selling of the euro gained momentum after it below the 50-day simple moving average around $1.2730, which triggered stop-loss sales, traders said. Some market participants cited euro selling by central banks.

Technical analysts said the market was focusing on the $1.2646 region, around the 23.6 percent Fibonacci retracement of the euro's slide from November 2009 to June 2010.

US DOLLAR HOLDS ABOVE 85 YEN

The U.S. dollar last traded up 0.4 percent at 85.66 yen, helped by speculation that Japanese authorities may act to stem the yen's rise. Risk aversion capped the dollar's gains against the yen.

Speculation is focused on additional easing measures by the Bank of Japan, including expanding a funding scheme for short-term loans.

"Markets are waiting for a meeting between the prime minister and the Bank of Japan governor, which is feeding into hopes that some easing measures may emerge," one London-based trader said.

Finance Minister Yoshihiko Noda said on Friday his ministry was communicating with other Group of Seven countries on currencies.

The euro dropped to a 7-week low against the yen on electronic trading platform EBS and last traded at 108.85 yen, down 0.5 percent. The euro fell 0.6 percent to 1.3155 Swiss francs, edging toward its record low.

For the week, the euro fell 0.4 percent against the dollar, its second straight weekly decline, while the dollar fell 0.6 percent against the yen.

The high-yielding Australian dollar hit a one-month low against the U.S. currency on concerns about that country's Saturday's election, before recovering to last trade flat at 0.8924.

(Additional reporting by Nick Olivari; Editing by )

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