* U.S. bond yields fall after solid seven-year auction
* Swiss franc near record high; commodity currencies firm
* Euro holds above 200-day moving average
(Updates prices, adds comment, details)
By Wanfeng Zhou
NEW YORK, Dec 29 The dollar hit a seven-week
low against the yen and dropped versus the euro on Wednesday,
as U.S. government bond yields tumbled following a solid debt
auction, diminishing the appeal of the greenback.
Rising global stock prices on expectations of stronger
economic growth in 2011 also lifted investors' appetite for
higher-yielding currencies and pressured the safe-haven U.S.
dollar, analysts said.
U.S. Treasuries extended price gains, pushing yields
sharply lower, after a $29 billion auction of seven-year notes
drew surprisingly strong demand a day after a weak five-year
sale. Lower bond yields make the dollar less attractive as it
erodes the return on U.S. assets. For details, see
"The reaction in the bond markets is fairly sharp," said
Vassili Serebriakov, currency strategist at Wells Fargo in New
York. "There's a broader move towards a weaker U.S. currency."
Thin trading ahead of the New Year's holiday likely
exaggerated currency moves, traders said.
The dollar fell as low as 81.61 yen JPY=EBS on trading
platform EBS, the lowest since Nov. 10. It was last down 1
percent at 81.64 yen. Support is seen around 81.50 yen.
Citigroup technical analysts said the downward momentum in
dollar/yen may continue after the recent double top close to
84.50 and the recent dead cross constructed by the five- and
21-day moving averages.
"Based on the double top, the downside limit may be 80.21,
the lowest level of the year," they said. "However, we do not
expect this price action to be long lived."
The Australian dollar AUD=D4 rose as high as $1.0184, a
28-year peak. Rising commodity prices boosted the Aussie and
helped investors shrug off fear that a recent Chinese interest
rate hike would slow the economy. London Metal Exchange copper
hit a record high [MET/L].
"There's an underlying theme of more optimistic markets or
stronger risk appetite this week," Wells Fargo's Serebriakov
"With optimism about the U.S. economy and global economy
starting to pick up again and with the Federal Reserve
continuing to pump liquidity into the financial system, this
should help risk appetite and risk-sensitive currencies and
probably weigh on the dollar broadly," he said.
EURO WORRIES REMAIN
The euro hit a session peak at $1.3240 EUR=EBS on EBS
before pulling back to last trade at $1.3219, up 0.8 percent.
Worries that the euro-zone debt crisis could spread to
Spain and Portugal have many analysts bracing for more euro
weakness in early 2011, but the currency's stubborn refusal to
break below the 200-day moving average, now at $1.3086, has
frustrated bearish investors.
While the euro may see a rebound toward $1.35 in the near
term, any sustainable gains look unlikely, analysts said.
"The big issue in this case still remains whether or not
the EU will come through with some sort of tangible rescue fund
or if it will continue to bail out troubled nations on a
case-by-case basis," said Brendan McGrath, manager of business
solutions at Western Union Business Solutions, in Victoria,
British Columbia. "The market is clearly looking for something
proactive from the EU before they get long euros again."
Analysts said year-end positioning was driving prices as
well. That's been the case with the yen and Swiss franc, both
of which have risen over recent days on repatriation flows.
The euro was last at 1.2511 Swiss francs EURCHF=EBS, more
than half a cent from a record low, while the dollar fell to
0.9466 francs CHF=EBS, near Tuesday's 0.9435 record low.
(Additional reporting by Steven C. Johnson; Editing by Leslie