Dollar rises amid worries about global growth
China's $586 billion economic stimulus plan boosts risk appetite but investors remain wary of global growth outlook.
NEW YORK (CNNMoney.com) -- The U.S. dollar rose against most major currencies Monday afternoon after enthusiasm about China's massive economic stimulus faded and ongoing concerns about the health of the global economy returned.
The euro traded at $1.2749, down from $1.2763 late Friday in New York. The 15-nation currency rose to $1.2927 earlier in the session.
Britain's pound fell to $1.5590, down from $1.5671.
Against the Japanese yen, dollar bought ¥97.84 from ¥97.74.
Late Sunday, the Chinese government announced a $586 billion stimulus plan designed to bolster the world's fourth-largest economy by increasing spending on infrastructure and providing tax breaks for exporters and poor farmers.
The plan comes as the economic slowdown in the United States and Europe threaten to stall China's export-driven economy.
While investors initially cheered the plan, sending Asian stock indexes higher overnight, the enthusiasm waned in U.S. markets
"Much remains to be known about the role of banks in passing on credit and companies' willingness to spend," said Ashraf Liadi, chief foreign exchange analyst at CMC Markets in New York.
Lending rates continued to ease Monday but many banks remain wary of lending to businesses and consumers as the economic outlook remains cloudy.
Liadi points out that rising unemployment and an ailing automotive sector in the U.S. "highlight the ongoing economic implications of the credit crisis."
U.S. stocks turned lower after surging after the opening bell. The Dow Jones industrial average was down about 1% with roughly three hours left in the session.
Currency traders take cues about the global economic outlook from the stock market. When stocks fall, low-yielding currencies such as the dollar and the yen often rise as investors shy away from higher-yielding assets that are more risky.
Meanwhile, troubled insurance giant American International Group will receive a reworked $152.5 billion deal from the U.S. government.
AIG (AIG, Fortune 500) was having difficulty paying back its original bridge loan, which it intended to use to sell off many of its subsidiaries to restore the company to a stable condition. But the credit crisis has proven to be a difficult environment to spin off assets.
Steve Malyon, currency strategist at Scotia Capital, said he expects more government efforts aimed at bolstering the global economy.
But he warned that Friday's Labor Department's report, which showed the economy lost 1.2 million jobs so far this year, hints at more economic challenges ahead.
"While these measures will limit the ultimate downside to the economy, it is too late to avoid a major slowdown in global economic growth, and Friday's jobs data was just a taste of what is to come in the United States." 
