Dollar retreats as stocks gain

After a sharp selloff in the previous session, the euro and pound gain as investors' appetite for risk is revived.

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NEW YORK (CNNMoney.com) -- The dollar fell against the euro and the pound Tuesday but gained ground against the yen as global stock markets advanced.

The dollar rallied against its higher yielding rivals in the previous session as investors shied away from risky assets. But demand for the greenback safe-haven evaporated Tuesday as stocks rebounded following a two-day selloff.

Still, investors remain concerned about the fate of troubled U.S. automakers, the ongoing financial crisis and the U.S. government's monthly unemployment report due Friday.

"These concerns still preside over the market," said Kathy Lien, director of currency research at Global ForEx Trading. "But with no new news today we're seeing a bit of a relief rally."

The currency market is also responding to technical factors related to quarter-end portfolio adjustments. Money managers and central banks often "repatriate" currencies to put the best possible face on quarterly statements, a strategy called "window dressing," Lien said.

The dollar sank 0.6% against the euro to buy $1.3288. While the euro gained significant ground on the dollar in March, the 15-nation currency is down 5.5% so far this year.

The dollar fell 0.7% versus the pound to $1.4356. For the year, sterling is down more than 3% against the dollar.

Against the yen, the dollar rose 1.7% to ¥98.96. Japan's fiscal year ended Tuesday and many investors are now selling the currency after repatriating it earlier in the week, Lien said.

Meanwhile, the People's Bank of China said Tuesday that it is discussing additional currency swaps with other central banks to boost liquidity and encourage bilateral trade.

The PBC is reportedly close to a formal agreement with the Central Bank of Argentina on a currency swap involving 70 billion yuan. Since 2008, the PBC said it has signed six bilateral currency swap agreements with central banks worth 650 billion yuan.

"At present, the PBC is discussing with other central banks with similar requests on establishing bilateral currency swap agreements," the central bank said in a statement on its web site.

The statement comes after China's central bank chief called last week for an expanded role for the International Monetary Fund's Special Drawing Right (SDR) as an alternative to the dollar as the world's primary reserve currency.

The SDR is an international reserve asset based on the value of a basket of currencies, including the euro, Japanese yen, pound sterling and U.S. dollar. It was created to help governments manage exchange rates.

Expanding the role of the SDR would limit the influence of any one country's fiscal and monetary policies on the global economy, said People's Bank of China governor Zhou Xiaochuan.

But maintaining the dollar as the world's dominant reserve currency is key to stabilizing the global financial system, according to World Bank President Robert Zoellick.

"A dollar-based system and a strong dollar ... will be critical to pull us out of this hole," Zoellick told Reuters Tuesday. "Over time, however, you will see discussions over the role of the dollar."

World leaders meeting in London for the Group of 20 major industrialized nations are not expected to discuss the SDR, analysts said.

Talkback:Have you bought a new car? Or, are you holding on to your old car?What would it take to convince you to buy? And would you buy Detroit? Or does the specter of bankruptcy push you to an import? E-mail realstories@cnnmoney.com and you could be part of an upcoming story. Your comments are subject to our Commenting Policy. To top of page

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