Dollar falls on durables data, Trichet rate comments

By Lucia Mutikani

NEW YORK (Reuters) - The dollar fell for a second straight session on Wednesday, weighed down by surprisingly weak U.S. durable goods orders and remarks by European Central Bank chief Jean-Claude Trichet that euro zone rates were at the right level.

Analysts said Trichet's comments, in an interview with a French magazine, with news that German and French business confidence unexpectedly improved in March, dampened expectations of a swift ECB interest rate cut.

That left investors focusing on the widening interest rate differential between the United States and the euro zone. They drove the euro to a session high of $1.5845, within spitting distance of an all-time peak of $1.5905 touched last week.

"The durable goods orders point to further weakness from the investment side of the economy, which is not good news," said Mike Moran, senior currency strategist at Standard Chartered Bank in New York.

"The ECB comments reiterating the appropriate level of interest rates also underline the fact that the interest rate differential between the U.S. and Europe will continue to widen. We see the Fed cutting rates over the next few months."

The Federal Reserve has slashed its benchmark overnight lending rate by 3 percentage points to 2.25 percent since mid-September, while the ECB has kept its refinancing rate at 4 percent. Lower interest rates make dollar-denominated assets less appealing.

SCRAMBLE TO RE-ESTABLISH DOLLAR SHORTS

In late New York trade, the euro was up 1.3 percent at $1.5836. Analysts said the single currency's decisive rebound indicated that the dollar's recovery last week was mainly driven by month-end and quarter-end squaring of books.