* Dollar extends losses from previous day vs euro
* NZ economy shrinks in Q1 for 5th straight qtr, dents kiwi
By Satomi Noguchi
TOKYO, June 26 (Reuters) - The dollar fell against a basket
of currencies on Friday, extending losses made the previous day
as investors shifted funds back into risky assets as the Federal
Reserve appeared to confirm this week that it will keep interest
rates low for a while.
Investor appetite for risk was also helped by the Fed and its
counterparts around the world extending their currency swap lines
on Thursday until February 2010 so they have U.S. dollars to lend
in their markets.[]
The central banks' announcement came a day after the Fed left
interest rates unchanged near zero and said it saw signs the deep
recession was easing.
"The market is just relieved to see the Fed is not in that
much of a hurry to take (tightening) action," said Takahide
Nagasaki, chief FX strategist at Daiwa Securities SMBC.
"Almost every market is back to where it was about a week ago
before the Fed, in the same way as oil prices are rebounding
above $70 a barrel," Nagasaki said.
The dollar index, a gauge of the greenback's performance
against six other major currencies, fell 0.3 percent to 80.193
<.DXY>, towards a two-week low of 79.562 touched earlier this
week before the Fed's policy decision.
The euro rose 0.3 percent to $1.4031 <EUR=> and towards a
two-week high of $1.4139 hit earlier this week.
Some analysts said a bigger-than-expected amount of one-year
funds injected into money markets by the European Central Bank
this week also added to risk appetite.
"The operation will likely help stabilise the global
financial market, by keeping rates steady for a year and sending
a message that the ECB is ready to take action if anything goes
wrong," said Tsutomu Soma, a senior manager in the foreign
securities department at Okasan Securities.
Still, market players hesitated to chase the euro or other
currencies higher without hard economic evidence as they suspect
that the rallies in the past few months have got ahead of
economic recovery.
Earlier this month the euro climbed above $1.43, its highest
since late December, while the Australian dollar leapt above
$0.8250 to hit its highest since late September.
Market participants also remained cautious about possible
intervention by the Swiss National Bank to weaken its domestic
currency against the euro and the dollar.
The SNB repeatedly intervened on Wednesday, according to
traders, giving a stark reminder that it is determined to fight
deflation risks by preventing a rise in the Swiss franc.
[]
The euro added 0.1 percent to 1.5323 francs <EURCHF=>, while
the dollar fell 0.2 percent to 1.0923 francs <CHF=>.
Japanese consumer prices fell at a record pace in the year to
May, adding to other weak signals about the health of the global
economy. []
The New Zealand dollar fell after news that the country's
economy contracted for the fifth quarter in a row in
January-March, backing the central bank's view that interest
rates will stay at current low levels well into 2010.
[]
The kiwi was down 0.6 percent at $0.6426 <NZD=D4>, and down
0.6 percent at 61.61 yen <NZDJPY=R>.
Against the yen, the dollar erased earlier losses to trade at
95.89 yen <JPY=>, nearly flat on the day, as some traders sold
the yen back in anticipation that yen-selling flows related to
Japan's investment trusts will emerge.
A further $4.3 billion worth of Japanese mutual funds
investing overseas is expected to be launched between Friday and
next Tuesday according to data complied by Reuters, following
several funds that saw inflows of about $1.25 billion this week.
The euro climbed 0.3 percent to 134.64 yen <EURJPY=R>.
(Additional reporting by Aiko Hayashi; Editing by Chris
Gallagher)
