* Optimism on global economy fuels rally in risk appetite
* Dollar drops to four-month low vs basket of currencies
* Euro climbs to seven-week high against U.S. dollar
(Adds quotes, updates prices, details)
By Wanfeng Zhou
NEW YORK, May 12 (Reuters) - The U.S. dollar fell to a
four-month low on Tuesday as growing optimism that the global
recession is easing dented the greenback's safe-haven appeal.
Stronger-than-expected UK retail sales, housing market and
industrial production data pushed sterling up well over 1
percent versus the dollar earlier in the session, while the
euro hit a seven-week high above $1.37.
Leading central bankers, including European Central Bank
President Jean-Claude Trichet, said on Monday the global
economy was at an "inflection point" and could turn the corner
soon. []
"We've passed the worst in the recession," said Matt
Esteve, a foreign-exchange trader at Tempus Consulting in
Washington. "We're not necessarily moving into growth yet, but
at least the pace of deterioration has slowed."
"As the global economy approaches a turnaround, the dollar
has really lost its appeal as a safe-haven investment," he
added.
In midday trading in New York, the ICE Futures U.S. dollar
index, which tracks the greenback against a basket of six
currencies, fell 0.4 percent, having hit 81.998, the lowest
since early January <.DXY>.
The dollar index is on track for its third consecutive
close below the 200-day moving average after breaking below
longer-term technical support on Friday. The 200-day moving
average now becomes technical resistance.
The euro rose to a seven-week high of $1.3706, according to
Reuters data. It was last up 0.3 percent at $1.3621 <EUR=>,
getting a further lift after European Central Bank Governing
Council member Axel Weber said there is no need for the ECB to
expand its asset purchase program into other sorts of private
debt at present. See [].
The euro was firmly on track for a third daily close above
the 200-day moving average and second straight week above the
200-week moving average.
Against the yen, the euro erased earlier gains to trade 0.6
percent lower at 131.55 yen <EURJPY=> and the dollar fell 1
percent to 96.58 yen <JPY=> after sliding to 96.34 yen, the
lowest since late April, according to Reuters data.
'GREEN SHOOTS'
Hopes that the worst of the economic slump and financial
crisis was over have put heavy pressure on the dollar recently.
The U.S. currency tends to fall when risk appetite rises as
investors move money away from safe-haven assets into riskier
investments.
"In general, market participants seem to be subscribing to
the 'green shoots of recovery' theory," said Samarjit Shankar,
director of global foreign exchange strategy at the Bank of New
York Mellon in Boston. "If risk appetite remains in place, the
dollar is likely to continue to weaken."
UK surveys overnight showed retail sales rising at their
fastest rate in three years last month, while house prices
declined at their slowest pace in 15 months. Separate data
showed UK industrial and manufacturing output fell less than
forecast in March []. [].
Investors also took heart from data from China that showed
investment spending surged even though exports fell more
steeply than expected. See [].
Sterling was up 0.7 percent at $1.5226 <GBP=D4>, having
earlier climbed to $1.5352, the best level since early
January.
Despite the recent improvement in risk sentiment, many
analysts cautioned that it remained too early to sound all
clear on the economic outlook.
"There's still a lot of skepticism," said Steven Butler,
head of FX trading at Scotia Capital in Toronto. "If the stock
market can't make some new gains, I think the market will be
very cautious about believing that the green shoots are here to
last."
(Editing by Leslie Adler)
