Dollar falls on global optimism
The greenback loses ground against most major currencies on increased demand for risk.
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NEW YORK (Reuters) -- The dollar fell against most major currencies on Tuesday, as renewed optimism about the global economy reduced demand for safer assets and bolstered currencies perceived as having higher risk.
The dollar's losses, however, were limited by data showing a sharp decline in U.S. housing starts to a record low last month, which re-ignited worries that the worst of the global financial storm has not passed.
"More people seem to be saying that the global economy has hit an inflection point. But we're not completely out of the woods yet," said Brian Kim, currency strategist at UBS in Stamford, Connecticut.
"We're not going to have a straight-line recovery ... But at this point though, people are sort of going into risky assets more which means that the dollar should continue to weaken."
Ongoing bets that the global economy has turned a corner has stung the dollar and yen as traders unwind positions in the two currencies that had been built up since last autumn when the financial crisis escalated. They are perceived to be safe-haven options during times of uncertainty.
In early New York trading, the euro held gains at $1.3588, up 0.2%, but it was off the day's highs at $1.3658. The euro had gained earlier after a surprisingly strong survey of German economic sentiment.
Broad losses caused the ICE Futures' dollar index, a measure of the dollar's value against six major currencies to fall 0.2% to 82.412
Analysts said data showing new U.S. housing starts and permits unexpectedly fell to record lows in April doused the view that the housing market was stabilizing, which should dent optimism in the market.
"We've had a nice rebound from last week's gains in risk assets, and I think this will mean we're going to see a short-term top in stocks and a retreat in the yen crosses,' said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.
"I think we'll get a reprise of the notion that stock prices have hit some stratospheric levels."
Sterling jumped against the dollar, rallying above $1.55 to its highest level of the year at $1.5515. It last traded at $1.5490, up 0.9% on the day.
The pound was helped higher by reports that Britain has held talks with investors to gauge interest in buying stakes in part-nationalized lenders.
The Australian dollar hit a seven-month high at US$0.7770 boosted by the rise in oil prices. The Aussie dollar was last at US$0.7707, up 0.8% from late on Monday. 
