* Euro rebounds as global stocks recover from losses
* Sterling tumbles on concerns over UK budget
* US Feb home prices rose; Morgan Stanley reports loss
(Adds details, updates prices)
By Vivianne Rodrigues
NEW YORK, April 22 (Reuters) - The euro rose against the
dollar on Wednesday as a recovery in stocks in Europe and on
Wall Street helped ease investors' appetite for safe-haven
currencies such as the U.S. dollar and the Japanese yen.
The rebound in equities, combined with a report showing
U.S. home prices rose in February and news of a sell-off in the
British pound earlier, contributed to the gains in the European
common currency, analysts said.
"U.S. stocks suddenly took off, bringing European shares up
and the euro," said Dan Cook, a senior market analyst at IG
Markets Inc in Chicago. "The correlation with equities is very
strong, and with any improvement in share prices we also see a
bit of a return to risk."
Cook said a U.S. report showing a slight rise in home
prices in February triggered the rebound on Wall Street. For
more see [].
Stocks had fallen earlier, led lower by financial shares
after Morgan Stanley <MS.N> posted a second quarterly loss and
slashed its dividend. []
The dollar and the yen had benefited recently from concerns
over the outlook for the financial system and the global
economy.
The euro traded as high as $1.3036 <EUR=>, according to
Reuters data, after dropping to $1.2886. In midday trading in
New York, the euro was last up 0.7 percent at $1.3032.
The euro currency also rebounded against the yen to trade
as high as 128.12 <EURJPY=>, after sliding to 126.21.
Cook said he expects euro/dollar to trade between 1.25 and
1.31 in coming weeks. Still, a break above 1.31 may push the
euro further to 1.32, he said.
Demand for the euro zone single currency had risen after
British Finance Minister Alistair Darling forecast that the
country's economy will shrink 3.5 percent this year as public
sector net borrowing jumps. []
His comments sparked a sell-off in sterling and helped push
the euro up 1.8 percent versus the pound to 89.81 pence
<EURGBP=>. Meanwhile, sterling was down 1.1 percent against the
dollar at $1.4502 <GBP=>.
"As sterling tumbled, we've seen demand for the euro and
other crosses coming up," said Meg Browne, a currency
strategist at Brown Brothers Harriman in New York. "The budget
news had a negative impact."
Other analysts also expressed concern about the impact on
the UK economy of such a large jump in government borrowing.
Investec's chief economist Philip Shaw in London said
forecasts for net borrowing of 5.5 percent of gross domestic
product in 2013-2014 "is an extremely high level of government
borrowing over the medium term".
STRESS TESTS
Further gains in the euro may be limited though as the
market is awaiting the outcome of the U.S. authorities' stress
tests on major banks. U.S. officials are expected to release
details of the underlying assumptions of the tests on Friday,
but actual results are not expected until May 4.
U.S. Treasury Secretary Timothy Geithner said on Tuesday
that most U.S. banks have enough capital to keep lending but a
pile of bad debts is fostering doubts about their health and
slowing a recovery.
Speaking on Wednesday, he said the United States bears a
substantial share of the blame for the current economic crisis
but that "the rest of the world needs the U.S. economy and
financial system to recover for the global economy to revive."
[]
(Editing by James Dalgleish)
