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By Simon Falush
LONDON, Feb 26 (Reuters) - The euro hit a three-week high
versus the dollar and a six-week peak against the yen on Tuesday
after a forecast-beating German Ifo business sentiment survey
dampened the case for near-term euro zone interest rate cuts.
The February Ifo index rose to 104.1 from January's 103.4,
beating even the highest forecast in a Reuters poll and easing
concerns about the health of the euro zone's biggest economy.
Ifo's president Hans-Werner Sinn said it would be premature
for the ECB to cut rates yet, and markets trimmed expectations
for a move by end-June to 1-in-5 from 1-in-3 before the data.
Such a cut was almost fully priced in at the start of last week
<FEIM8>.
"(The euro's strength) is mainly on the back of the Ifo, it
has decreased the chances of near-term ECB easing as the broad
prospects for the euro zone economy aren't looking as dire as
they were," said David Pais, currency strategist at Citi.
By 1136 GMT, the euro had risen as high as $1.4878, its
highest since Feb. 1 <EUR=>. Against the yen the euro touched
its highest since mid January at 160.58 yen <EURJPY=>.
CONFIDENCE BOOSTERS
Overall risk appetite was well supported as European equity
markets rose on positive news from the financial sector.
Standard & Poor's on Monday affirmed the top-notch credit
rating of U.S. bond insurer MBIA Inc <MBI.N>, easing some
concerns about ailing credit markets.
The possibility of an imminent rescue plan for bond insurer
Ambac Financial Group Inc <ABK.N> also helped improve investor
confidence.
Concern that financial firms may suffer greater losses if
the bond insurers lose their top-notch ratings, leading to
ratings downgrades on the fixed-income securities they back,
have kept investors on edge since the start of the year.
But the high-yielding Australian and New Zealand dollars
failed to benefit much from the improved risk appetite.
The kiwi was down 0.2 percent at US$0.8092, as investors
took profits on its rally to 23-year post-float peaks of around
US$0.8150 earlier in the session <NZD=>. The Aussie was a touch
firmer at US$0.9279 <AUD=>.
"The news we've had on the monolines has been risk
appetite-friendly, but commodities are coming back a little bit
from their recent highs so it's a slightly mixed picture there
as far as high yielders are concerned," said Ian Stannard,
senior foreign exchange strategist at BNP Paribas.
Gold was trading more than $20 below last week's record
highs <XAU=>.
U.S. January producer price inflation data is scheduled for
1330 GMT, with the market will be watched for clues about how
rising inflation could affect the economy.
"While in the end (a high PPI number) would limit the scope
for the Fed to cut rates, we believe that such outcome would be
perceived as USD negative due the negative impact on all U.S.
assets: equities, bonds as well as real estate," said Dresdner
Kleinwort in a note to clients.
Tuesday's calendar also clues consumer confidence for
February at 1500 GMT and Federal Reserve Vice Chairman Donald
Kohn's speech on the domestic economy and monetary policy at
1715 GMT.
(Editing by David Christian-Edwards)
