US$ falls as risk aversion eases after UAE backs Dubai

The U.S. currency also snapped two days of gains against the euro after the Abu Dhabi-based central bank said lenders will be able to borrow using a special facility tied to their current accounts. The Australian and New Zealand dollars rallied as demand for high-yielding assets increased. The euro rose after a report showed European consumer prices increased for the first time in seven months.

“The assurances, though not as strong as some people would have liked, imply risk appetite and the risk trade have come back,” said Stuart Bennett, a London-based analyst at Calyon, the investment-banking arm of Credit Agricole SA. “The pressure on the dollar was already there before the announcement. If this is a Dubai blip, people are going to be worried that they'll miss the boat.”

The dollar weakened to US$1.5048 per euro as of 10:41 a.m. in London, from US$1.4988 in New York last week. Australia's dollar jumped to 91.38 U.S. cents, from 90.63 cents, and strengthened to 78.93 yen, from 78.43. New Zealand's dollar advanced to 71.50 cents, from 71.11, and gained to 61.76 yen, from 61.52 yen.

The yen was at 129.96 per euro, from 129.67 at the end of last week. It traded at 86.40 per dollar, from 86.53. It rose to a 14-year high of 84.83 on Nov. 27.

The MSCI World Index of stocks rose 0.3 percent after the UAE central bank said Sunday lenders will be able to borrow money from the regulator for half a percentage point above the three-month local benchmark interest rate. U.S. stock-index futures advanced.

Dubai World, which is struggling with US$59 billion of debt and other liabilities, said Nov. 25 it would seek a standstill agreement with creditors and an extension of loan maturities until at least May 30, 2010. The news led to a slump in global financial markets and raised prospects of new loan losses for U.A.E. and foreign banks.

“Dubai World's news spread fears over potential risks in emerging markets,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Co., a unit of France's third-largest bank.

The dollar may weaken to US$1.55 per euro by year-end, Bennett said. The median forecast of analysts' predictions compiled by Bloomberg News is for the dollar to trade at US$1.50 at the end of December.

The yen strengthened versus the dollar after Japanese Finance Minister Hirohisa Fujii was quoted by the Mainichi newspaper as saying the government won't act to curb its gains.

Japan hasn't sold its currency since March 16, 2004, when it was at about 109 per dollar. The BOJ sold 14.8 trillion yen (US$172 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. Japan last bought the currency in 1998 as the rate fell as low as 147.66.

Contracts granting the right to buy the yen versus the dollar rose last week to a 2.1 percentage-point premium relative to options for selling Japan's currency, according to Bloomberg data. The odds of the yen strengthening past 84.83 per dollar to 84.5 by the end of March rose to 80 percent, options data compiled by Bloomberg show.

The Swiss franc gained as much as 0.1 percent against the euro to trade at 1.5052 amid investor optimism that Switzerland's economy will outperform its peers as the global recovery takes shape. It was at 1.5076, from 1.5070 last week.

The euro climbed most against the South African rand and Swedish krona after the European Union statistics office in Luxembourg said consumer prices in the 16-nation region rose 0.6 percent this month from a year earlier, after falling 0.1 percent in October. Economists had projected a gain of 0.4 percent, according to a Bloomberg News survey.

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