Dollar falls on stock strength

The greenback retreats after climbing to a 2-week high against the euro as global equities, commodities advance.

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NEW YORK (Reuters) -- The U.S. dollar slid against major currencies Thursday as a rebound in global stocks and commodities on optimism about an economic recovery worldwide dimmed the greenback's safe-haven allure.

U.S. stock indexes jumped after a string of stronger-than-expected corporate results, while European shares closed at their highest in nearly nine months.

Commodities also rose, with oil rising above $66 a barrel. That pressured the yen as well, which tends to fall when there is demand for riskier assets along with the dollar.

A $28-billion seven-year U.S. Treasury auction on Thursday attracted strong demand, easing concerns about financing the massive U.S. budget deficit. The bid-to-cover ratio, which measures demand, was 2.63 after 1.92 on Wednesday,

"Today risk is on and it's helped a lot by the rally in equities," said Shaun Osborne, chief currency strategist at TD Securities in Toronto. "The auction results also helped risk appetite to a certain extent."

Indirect bidders, a gauge of foreign interest, accounted for 62%, following just 37% on Wednesday and 33% on Tuesday.

The dollar's losses were limited, however, with many investors staying on the sidelines ahead of the first reading of second-quarter U.S. gross domestic product Friday.

The economy is forecast to have contracted by 1.5% after a fall of 5.5% in the first three months of the year, according economists polled by Reuters.

The report "should be a pretty important piece of data for the recovery/recession debate that seems to be ongoing," said Adam Fazio, currency strategist at CIBC World Markets in New York.

He said CIBC is looking for "a much worse reading," and should the GDP data disappoint, the dollar could see "further strength" as investors look for safe-haven investments.

The euro rose 0.1% to $1.4068, rebounding from a two-week low near $1.40. The euro zone single currency briefly pared gains after the International Monetary Fund said the euro's exchange rate looks "somewhat on the strong side relative to its fundamentals."

Based on exchange rate developments from Feb. 25 to March 25, the IMF report said, "estimates place the euro's overvaluation in a range of 0-15 percent."

Overall, TD's Osborne said, it has been a poor week for the euro, with the currency's technical fundamentals "looking quite weak as well." Despite gains on Thursday, the euro was down nearly 1% this week versus the dollar, on pace for its worst weekly performance since early June.

The dollar rose 0.7% to ¥95.61, extending gains after government data showing a drop in continuing claims boosted optimism about the U.S. labor market.

The number of U.S. workers filing new claims for jobless benefits rose slightly more than expected last week, but a gauge of underlying labor trends fell for a fifth straight week, the Labor Department said.

The euro was also up versus the Japanese currency, gaining 0.8% at ¥134.55. To top of page

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