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FOREX-Dollar up as ECB, BoE cut rates, anxiety mounts
March 5, 2009 / 2:13 PM / in 9 years

FOREX-Dollar up as ECB, BoE cut rates, anxiety mounts

* Euro falls as ECB cuts rates, lowers growth forecast

* BoE cuts rates, announces asset purchases, pound slips

* Dollar hits fresh 4-month high at 99.67 yen

* European stocks fall, Wall Street points to lower open (Updates prices, adds comment, changes byline)

By Steven C. Johnson

NEW YORK, March 5 (Reuters) - The dollar rose broadly on Thursday as central banks in Britain and the euro zone cut borrowing costs, while anxiety about the global economy continued to enhance the safe-haven status of the U.S. currency.

The euro tumbled below $1.25 EUR= after European Central Bank President Jean-Claude Trichet followed a half-percentage point rate cut by saying inflation had cooled and euro-zone growth was likely to be weak throughout 2009.

The ECB said it now sees euro-zone growth contracting anywhere from 2.2 percent to 3.2 percent this year, with a mild recovery seen only in 2010.

“The forecasts they put out have changed quite dramatically,” said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto. “They are painting a far gloomier economic outlook for the euro zone.”

Data on Tuesday confirmed the euro-zone economy contracted by 1.5 percent in the fourth quarter of 2008.

Sterling also fell after the Bank of England cut rates to a record low of 0.5 percent and said it would start buying 75 billion pounds ($106 billion) of assets to boost the UK economy. [ID:nL5901755]

Ashraf Laidi, chief market analyst at CMC Markets in London, called it “tiptoe(ing) into quantitative easing” -- the process of flooding the banking system with funds to promote lending when interest rates are already at or near zero.

Early in New York, the euro was trading at $1.2491, down 1.2 percent. while sterling was off 0.5 percent at $1.4092 GBP=.

The dollar rose 0.1 percent to 99.18 yen JPY= after earlier hitting a fresh four-month peak at 99.67 yen, according to Reuters data.

Government data Thursday showed Japanese firms’ capital spending tumbled 17.3 percent in October-December from the same period a year earlier, pointing to a downward revision of gross domestic product for the quarter next week.

“Dollar/yen continues to ratchet higher toward the 100 yen level and should break through this mark before the end of the week,” said Daragh Maher, deputy head of global FX research at Calyon.

European stock markets were down more than 2 percent .FTEU3.FTSE with U.S. futures pointing to a lower open on Wall Street, dragged down partly by a warning from General Motors (GM.N). [ID:nN05319669]

Traders said that should continue to boost the flow of funds into perceived safer assets such as the dollar. (Additional reporting by Nick Olivari in New York and Kirsten Donovan in London; editing by)

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