* U.S. manufacturing sector grew in October -ISM
* Australian dollar up ahead of expected RBA rate hike
* U.S., euro zone and UK policy decisions later in week
(Updates prices, adds quotes, details)
By Wanfeng Zhou
NEW YORK, Nov 2 (Reuters) - The dollar and yen declined on
Monday as data showing more evidence of a worldwide economic
recovery and rising stock prices eroded safe-haven demand for
the U.S. and Japanese currencies.
U.S. data showed sharp improvements in manufacturing,
construction and housing, encouraging investors to buy riskier
assets with higher yields.
U.S. stock indexes rose, and gold and oil prices advanced,
lifting commodity-linked currencies such as the Australian and
Canadian dollars.
"I think we're clearly seeing some appetite for risk
today," said Nick Bennenbroek, head of currency strategy at
Wells Fargo in New York. "The gains in U.S. equities in
particular are seeing the dollar give up some ground."
For much of the past year, the dollar has had an inverse
relationship with moves in the stock market, falling when good
economic data and rising share prices boost risk appetite.
In midday trading, the euro rose 0.7 percent to $1.4821
after climbing as high as $1.4845 <EUR=>, according to Reuters
data.
The dollar gained 0.4 percent to 90.50 yen <JPY=> after
falling as low as 89.18 yen per dollar on electronic trading
platform EBS. The euro rallied 1.1 percent to 134.12 yen
<EURJPY=R>.
U.S. manufacturing activity rose to its highest level in
3-1/2 years last month, offering hope the budding economic
recovery would be sustained. See [].
Other reports showed pending home sales, for homes under
contract to be sold, unexpectedly surged in September and
construction spending posted its largest gain in a year in
September.
"All the numbers show stabilization and the start of some
expansion. That's a continuation of what we've been seeing for
the past couple of months," said Thomas Nyheim, vice president
and portfolio manager at Christiana Bank & Trust Co. in
Greenville, Delaware.
Earlier, surveys showed China's manufacturing sector grew
at its fastest pace in 18 months in October and euro zone
factory activity expanded, also boosting market sentiment. See
[]
CENTRAL BANKS, G20
The ICE Futures U.S. dollar index, a measure of the
greenback's value against a basket of six major currencies,
fell 0.4 percent to 76.023 <.DXY>.
Investors remained cautious before a slew of events this
week, including monetary policy decisions in the United States,
the euro zone, Australia and the UK. The U.S. jobs report for
October is due out on Friday, and Group of 20 finance officials
will meet at the weekend.
"How this week evolves could have major implications for FX
markets and the global economy, as investors and policy makers
alike seek to establish their strategies for next year," UBS
strategists wrote in a note.
Canadian Finance Minister Jim Flaherty said on Monday the
G20 top developed and emerging economies will discuss foreign
exchange rates. Other G20 sources said foreign exchange rates
were not expected to be a major topic at the meeting, but may
be discussed in relation to rebalancing the world economy. See
[].
The Australian dollar rose 0.9 percent to US$0.9071 <AUD=>
as the market fully anticipated the Reserve Bank of Australia
will raise key interest rates on Tuesday by 25 basis points to
3.5 percent, with some chance of a 50 basis point rise.
[]
Sterling slipped as traders braced for the possibility the
Bank of England may announce an increase in its asset-buying
program later in the week and a British government announcement
of a banking sector overhaul.
The pound fell 0.3 percent to $1.6394 <GBP=>, while the
euro rose 1.1 percent to 90.38 pence <EURGBP=R>.
(Additional reporting by Ryan Vlastelica; Editing by Leslie
Adler)
