Dollar higher on bailout hope

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NEW YORK (CNNMoney.com) -- The dollar was mostly higher Thursday as investors clamped onto increasing optimism that approval of the government's $700 billion bailout plan was near.

The dollar rose against the Japanese yen, trading at ¥106.69, from ¥106.12 late Wednesday. Great Britain's pound dropped slightly to $1.8348 from $1.8465. And the 15-nation euro fell to $1.4614 from $1.4621.

Traders are taking any news signaling approval of the proposed bailout as positive for the market, said Amo Sahota, chief currency analyst with HiFX.

Bailout: Lawmakers have reached a counterproposal to President Bush's $700 billion bailout plan. It is believe to include plans for the Treasury to buy up mortgage-backed securities in an effort to get banks lending again, limits to executive pay packages, and a Treasury oversight board.

Kevin Chau, a foreign exchange analyst for IDEA Global, anticipates a bailout will strengthen the dollar further in the short term - but he warns that the economy will feel more pain, despite the proposed package in Washington.

"Down the line it is going to help fix the economy, but not going to fix it right away," said Chau. "We will still see a lot of pain."

But Chau said the long-term slowdown will also bleed into the global economy again, which will bolster the dollar against other currencies.

The dollar's gains came despite government reports showing a 17-year low in home sales and a near seven-year high in jobless benefits claims.

"The market really is in a confused state at the moment and trying to clutch onto something positive," said Sahota. "It sets the market up for disappointment."

Gold's impact. The greenback has also gained as gold for December delivery fell $13.

According to Chau, traders have begun to unwind their risk aversion packages that were put in place as Wall Street began to unhinge last week. As the possibility of a bailout becomes more likely, traders are moving money into stocks and away from gold, which strengthens the dollar.

Gold is often used as a hedge against inflation and was seen as a safer bet as the financial crisis swept through Wall Street.

Other markets. Oil prices edged higher. Crude for December delivery gained $1 a barrel in afternoon trading to $106.73. Stocks rallied, with the Dow Jones industrial average surging over 200 points in afternoon trading. Treasurys were mixed as traders shifted assets to riskier but more lucrative stocks.