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Dollar hits 25-month high against yen
Greenback rallies as interest rates remain in focus this week; Treasuries inch higher.
October 31, 2005: 3:59 PM EST
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NEW YORK (CNN/Money) - The dollar touched a 25-month high against the yen and gained against the euro Monday after a set of economic reports cemented expectations for the Fed to raise rates at its next meeting.

Longer-dated Treasury prices made modest gains while shorter-range paper held steady.

In currency trading, the dollar surged to ・116.38, up 0.6 percent from ・115.68 late Friday. Earlier in the session, the greenback rose as high ・116.43, its highest level in 25 months. The dollar also rallied against the euro, which bought $1.1989, down from $1.2066 in the previous session.

The dollar rose Friday after a report showed that business activity in the Midwest expanded at a faster pace in October than Wall Street had expected.

The Chicago Purchasing Managers Association said its index of regional manufacturing activity rose to 62.9 from 60.5 in September. Economists surveyed by Briefing.com had expected the index at 57.4.

"It confirms the Fed's optimistic assessment of the U.S. economy and essentially signals that the Fed's measured tightening campaign will persist. So this is dollar-positive," Alex Beuzelin, senior market analyst at Ruesch International, told Reuters.

The Fed's interest-rate setting panel, the Federal Open Market Committee, is widely expected to raise rates to 4 percent on Tuesday from the current 3.75 percent in an effort to fight inflation.

The Fed has raised its key short-term interest rate 11 straight times since last June, while its counterparts in Europe and Japan have kept rates fairly steady, which has helped make dollar-denominated investments more attractive to foreign investors.

Also on Friday, the Commerce Department said personal spending rose 0.5 percent last month, due to a jump in income caused by post-hurricane insurance payments.

The dollar got a boost from the report's inflation measure, which rose sharply 0.9 percent, making it the biggest rise since February 1981.

Excluding food and energy, the core personal consumption expenditures index advanced just 0.2 percent. But over the past year, this core price index has risen 2 percent, a level considered to be at the upper end of the Fed's comfort zone.

In the bond market, Treasury prices were fairly steady ahead of Tuesday's Fed meeting.

The benchmark 10-year note rose one tick to 97-18/32 to yield 4.55 percent, down from 4.57 percent late Friday. The 30-year bond gained 4/32 to 109-1/32 to yield 4.75 percent, down from 4.77 percent in the previous session. Bond prices and yields move in opposite directions.

In shorter-dated debt, the two-year was relatively unchanged, yielding 4.38 percent. The five-year note was also little changed, yielding 4.44 percent.

-- from staff and wire reports

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