* Dollar gains, recovering from recent falls
* Recent risk rally stalls as investors take profit
* Euro down 0.5 pct vs dollar; Aussie falls sharply
By Nicholas Vinocur
LONDON, July 29 (Reuters) - The dollar gained broadly on
Wednesday, recovering from recent losses as a rally in oil
prices and some stock markets paused, while investors took
profits on currencies considered to be higher risk.
Falls in U.S. equity futures <SPc1><DJc1> and a hefty 5
percent drop in Chinese stocks <> cut risk demand and
pushed the euro to a two-week low versus the dollar, even though
the mood in stock markets failed to carry over into Europe.
"Chinese stocks coming in lower was a bit of a scare this
morning, so risk was taken off at the end of Asian trading. But
London has chosen to ignore this," said Maurice Pomery, managing
director at Strategic Alpha, pointing out that European shares
<> had risen more than 1 percent on the day.
Pointing out that gains in the dollar were fairly limited on
Wednesday given its tumble against a host of currencies in past
weeks, he added: "The market is pretty determined to discount
bad news. Sentiment is still strong."
At 1158 GMT, the euro had fallen 0.6 percent against the
dollar to $1.4096 <EUR=>, its lowest since July 17. On Tuesday,
it rose as high as $1.4305 on trading platform EBS, its highest
since early June.
The dollar index, which measures its performance against a
basket of currencies, rose 0.6 percent to 79.290 <.DXY>,
recovering from a 2009 low of 78.315 hit the previous day.
A slide in risk demand boosted the yen across the board,
although it pared earlier gains. The euro was steady against the
yen at 133.85 yen <EURJPY=>, while the dollar rose 0.4 percent
to 94.90 yen <JPY=>.
Hopes the global economy is recovering were dented on
Tuesday after data showed a drop in U.S. consumer sentiment,
while falls in oil weighed on commodity-linked currencies such
as the Australian and Canadian dollars.
Investors awaited data on U.S. durable goods, as well as the
Federal Reserve's release of its Beige Book of Economic
Conditions later on Wednesday, while focus this week remains on
U.S. second-quarter gross domestic product figures on Friday.
The market also awaits more U.S. Treasury auctions this week
and the effect on yields.
COMMODITY FX FALL
A fall of more than 5 percent in Chinese stocks, partly
reflecting concerns that Chinese banks may begin to restrict
lending, helped push oil prices <CLc1> down more than 2 percent,
while prices of gold and metals such as copper also fell.
This weighed heavily on the commodity-based currencies,
which have benefited most from the rally in riskier assets.
The biggest mover was the Australian dollar, which corrected
some of the steep gains that propelled it to a 10-month high
against the U.S. dollar on Tuesday in response to hawkish
comments by Australia's central bank governor.
The Australian currency fell 1 percent against the dollar to
$0.8185 <AUD=D4> after hitting a high near $0.8340 on Tuesday.
The Canadian dollar -- which is particularly sensitive to
movements in the oil price -- was also down sharply, with the
U.S. dollar up 0.5 percent at C$1.0860 <CAD=>.
"We have had a very strong rally in risky assets and the
market has been looking for reasons to take profit. Given the
levels reached, a near-term extension of the rally looked
unsustainable," said Michael Klawitter, senior currency
strategist at Dresdner Kleinwort in Frankfurt.
"But I see this as a temporary rise in risk perception
rather than the start of a new trend," he added.
Analysts also noted that thin summer trading may be
prompting stronger-than-usual movements in major currency pairs.
(Additional reporting by Naomi Tajitsu and Jessica Mortimer;
Editing by Richard Balmforth)
