FOREX-Dollar gains broadly on dour global economic data
* Weak global data fans risk aversion * Euro posts worst daily performance since March * Spanish borrowing costs hit new highs at auction * Dollar hits 5-week high vs yen By Gertrude Chavez-Dreyfuss NEW YORK, June 21 (Reuters) - The U.S. dollar rose across the board on Thursday as weak economic data from the United States, Europe and China spurred investors to flee riskier currencies and seek shelter in the greenback. U.S. jobless claims indicated the labor market is still struggling, while signs of softening in U.S. manufacturing and weakness in global output heightened the aversion to risk. The reports reinforced the impression that the Federal Reserve did not act aggressively enough on Wednesday. "We've come back to the situation where the data was weak and concerning and we have anti-risk sentiment going on, which tends to benefit the dollar," said Tom Fitzpatrick, chief technical strategist at Citigroup. "In addition, nothing has really been done in Europe to solve the debt crisis, and as a result the underlying dynamic has not really changed. Therefore, we should continue to expect the dollar to outperform other currencies." The euro came under fresh pressure after data showed Germany's private sector shrank in June for the second month running, with manufacturing activity hitting a three-year low. The euro posted its largest daily loss against the dollar in more than three months. The data from Germany, Europe's largest economy, suggested the country may contract in the second quarter as the euro zone debt crisis intensified, and offset data from France that showed a slowdown in business activity there had eased. Overall, the weak euro zone data kept alive speculation the European Central Bank will cut interest rates, offering investors a fresh excuse to sell the euro. The euro dropped as low as $1.2571, far off Wednesday's high of $1.2744. By midday, the euro was at $1.2574, down 1 percent on the day. The euro's intraday bias, however, remained neutral, ActionForex analysts said. The rebound from a nearly two-year low of $1.2287 hit in early June was viewed as a correction, and with $1.2435 minor support intact, a further rally could still be seen, they added. POSITIONING FOR THE FED The dollar index, a measure of the greenback's performance against a basket of currencies, rose 0.7 percent to 82.154. Even so, analysts said the dollar's outlook was clouded, with more players likely to position for fresh Fed stimulus after the central bank downgraded its U.S. growth forecast. The Fed on Wednesday expanded its "Operation Twist" program, under which the U.S. central bank sells short-term securities to buy longer-term ones to keep long-term borrowing costs down, by $267 billion. The program, which was due to expire this month, will run until the end of the year. Some analysts said the Fed was probably saving ammunition given the risk the euro zone crisis could deteriorate in coming weeks as borrowing costs in peripheral countries remain high. Spain's borrowing hit a euro-era high at an auction on Thursday. The country's government officials said a formal request for bank support will be made in the next few days and the details finalized before the end of July. . A Reuters poll done after the Fed decision showed that Wall Street firms still see a 50 percent chance of another round of quantitative easing. Against the yen, the dollar hit a five-week high at 80.32 yen, its highest level since mid-May. It was last at 80.22, up 0.9 percent on the day. The euro slipped against the yen to 100.90. One possible factor for the yen's weakness was the approval by Japan's lower house of two dovish nominees to the Bank of Japan policy board. Scotia Capital currency strategist Eric Theoret said the nominees are known to favor further easing to support the Japanese economy. That could mean an expansion in the BoJ's asset purchase program over the coming months, likely to be announced at the next meeting, on July 12. Growth-linked currencies came under pressure against the U.S. dollar, digesting the Fed decision and weak Chinese data. The Australian dollar fell 1.0 percent to US$1.0086, retreating from a seven-week high of $1.0225 hit on Wednesday. The Aussie dollar hit an intraday low after a private-sector survey showed China's factory sector contracted for an eighth successive month in June, with export orders at their weakest since early 2009.
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