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FOREX-Falling oil prices boost dollar, Merrill supports

* Dollar rises, riskier assets in demand as oil prices dip

* Merrill Lynch write-down news less bearish

* May U.S. single-family home prices fall at record pace

(Recasts, updates prices, changes byline, dateline, previous LONDON)

By Lucia Mutikani

NEW YORK, July 29 (Reuters) - The dollar rose on Tuesday as a fall in crude oil price buoyed demand for riskier assets, lifting U.S. stocks at the open.

Analysts said Merrill Lynch's MER.N announcement late on Monday of a $5.7 billion third-quarter write-down and $8.5 billion capital raising by selling new stock was also helping to support the dollar.

“It’s a psychological confidence builder for the market, we are seeing Merrill credit default swaps come off sharply. It’s having the desired impact on market sentiment,” said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey.

“The fact that they have gone ahead and disposed of everything of considerable mortgage-related risk raises hopes of turning the corner. The fact they will also raise capital is seen as positive. There is a fair amount of silver lining in that cloud.”

The New York Board of Trade's dollar index, which measures the the dollar's performance against a basket of six currencies, rose as high as 72.942 .DXY, up 0.36 percent on the day.

“Even though it (the portfolio being sold by Merrill) creates initial losses, it could go a long way to relieve future uncertainty, which may be the reason why the impact of the announcement is not as negative as one would have expected,” said Jon Gencher, director of FX sales at BMO Capital Markets in Toronto.

“Could this be the start of the next move of the financial sector towards the end of the credit crisis?” Gencher writes in a note.

Declining oil prices kept investors away from the euro, despite data showing German price pressures were stronger than expected in July. Investors are worried that further interest rate hikes by the European Central Bank would hurt an already struggling euro zone economy.

French consumer confidence plunged to a record low for the seventh straight month in July, which also weighed on the euro.

The euro EUR= fell a session low of $1.5684. It was last trading at 1.5689, down 0.4 percent on the day. The dollar JPY= rose 0.3 percent to 107.82 yen as U.S. stocks opened firmer, thanks to the slide in crude oil prices.

U.S. crude oil CLc1 slid about 0.9 percent to $123.84 per barrel due to selling on speculation that oil prices may push lower after coming off a record high earlier this month.

News that prices of U.S. single-family homes plunged at a record pace in May from a year earlier had little impact on the market.

The yen was also hurt by news that Japan’s jobless rate rose in June to a near two-year high and household spending fell again from a year earlier.

Sterling GBP= fell 0.4 percent to $1.9853 after British retail sales fell at a record annual pace in July, while approvals for new mortgages hit a record low last month, offering further proof that a deteriorating housing market is battering the overall economy. (Editing by Andrea Ricci)

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