* Dollar rebounds broadly after sharp sell off
* Weak euro zone output data hurts euro
* G8 finance ministers' meeting in focus
(Adds comments, details. Changes byline)
By Vivianne Rodrigues
NEW YORK, June 12 (Reuters) - The U.S. dollar rose broadly
on Friday, rebounding from a sell off earlier this week, while
demand for the euro fell after data showed a plunge in euro
zone industrial production.
Commodity currencies including the Canadian and Australian
dollars also fell after sharp gains this week in tandem with a
drop in oil prices, and as G8 finance ministers prepared to
meet in Italy.
The dollar had spent most of the week under pressure as
investors, betting on a global recovery, bought higher-yielding
currencies and assets such as stocks and commodities. Analysts
and traders said the dollar's sharp drop was not fully
supported by economic fundamentals and that investors were
largely taking profits on Friday.
"The top performers on the week are the worst performers
today," said Meg Brown, a currency strategist at Brown Brothers
Harriman in New York. "We're seeing a classic correction."
The dollar was off its session highs in afternoon trading
in New York but remained firmer against major currencies.
The euro last changed hands at $1.4030 <EUR=EBS>, down 0.5
percent but off a session low at $1.3935, according to
electronic trading platform EBS. Sterling was down 0.5 percent
at $1.6494 <GBP=D4> after having moved above $1.66 on Thursday.
The dollar rose 0.7 percent at 98.21 yen <JPY=EBS> and 1.5
percent against the Canadian dollar to C$1.1192 <CAD=D2>.
Profit-taking on the euro accelerated after data showed
industrial production in the 16-country euro zone plunged 21.6
percent in the year to April. []
"Eurozone industrial output disappointed already weak
expectations," Brian Kim, a currency strategist at UBS AG said
in a note. "The data will add to calls for a prompt start to
the ECB's proposed covered bond purchasing scheme and the euro
weakened on the news."
G8 MEETING STARTS
U.S. data was more cheerful. A survey showed consumer
sentiment hit a nine-month high in June and expectations for
inflation rose [].
Some analysts said that bolsters an argument, advanced by
some currency traders, that the United States will be the first
to exit recession, clearing the way for a stronger dollar.
"We're edging into an environment where markets will start
picking winners and losers in the global recovery story," said
Wells Fargo strategist Vassili Serebriakov. "We're not quite
there yet, but there are hints of moving in that direction."
Inflation fears helped push the 10-year Treasury yield to 4
percent this week for the first time since October, and
investors have debated whether higher bond yields reflected a
strengthening U.S. economy or fears the United States may run
into trouble financing a record $1.8 trillion budget deficit.
For now, though, strategists said policymakers are worried
about dollar weakness. Exchange rates are not on the agenda at
a two-day meeting of the Group of Eight finance ministers
starting on Friday, but analysts said they may come up in light
of the dollar's recent slide, which has undermined euro-zone
exports by making them more costly.
Japanese Finance Minister Kaoru Yosano said before the
start of the G8 meeting that the Japanese government has
"complete trust in the fact that the U.S. views its
strong-dollar policy as fundamental". Yosano, who made the
comments in a Bloomberg interview, was also quoted as saying:
"Our trust in Treasuries is absolutely unshakable."
Japan is the second largest foreign holder of Treasuries
behind China and Yosano's comments helped push Treasury yields
lower, UBS' Kim said.
UBS sees the euro trading at $1.30 in three months.
(Additional reporting by Steven C. Johnson; Editing by Chizu
Nomiyama)
