* Euro rises to two-week high vs dollar
* Citigroup memo on earnings boosts risk tolerance
* Yen rises vs dlr, but doubts persist about Japan economy
(Updates prices, adds comment, change byline)
By Nick Olivari
NEW YORK, March 10 (Reuters) - The dollar fell against most
major currencies on Tuesday as comments by Citigroup's chief
executive that the bank was profitable in the first two months
of 2009 boosted stocks and prompted investors to pare back
safe-haven bids on the greenback.
An improvement in risk appetite spurred a bounce in the
euro, which rose to two-week highs versus the dollar. But
analysts cautioned that the euro's gains could be fleeting as
the global macroeconomic environment and worries about banking
systems worldwide remain supportive of the dollar as the
world's reserve currency.
The yen also rose against the dollar, though doubts about
the Japanese currency's status as a safe haven underpinned an
overall defensive tone, traders said.
"We're seeing a general rebound in risk appetite given
improving stock performance," said Omer Esiner, senior market
analyst at Ruesch International in Washington.
"The Citigroup memo assuaged fears about the health of the
banking sector, undermining the dollar's safe-haven appeal. But
this could be all temporary and the market is just probably
booking profits on the dollar's recent gains," he added.
In mid afternoon New York trading, the euro rose 0.8
percent to $1.2715, after hitting a roughly two-week high at
$1.2821 <EUR=>, according to Reuters data. The euro was also
0.8 percent firmer against sterling at 92.28 pence <EURGBP=>
after earlier touching a five-and-a-half week high at 92.47
pence.
U.S. stocks <.SPX> <> gained sharply after comments by
Citigroup <C.N> Chief Executive Vikram Pandit fueled optimism.
Pandit, in an internal memo seen by Reuters, said the company
was profitable in the first two months of the year and
confident about its capital strength. [].
BUY DOLLAR ON DIPS
Some analysts, however, were skeptical the
Citigroup-inspired rally in equities and currencies such as the
euro would last.
"The market is talking about the Citigroup news, but at the
same time the U.S. government is readying a fourth contingency
plan for Citigroup," said Adam Fazio, senior currency
strategist at CIBC World Markets in New York.
"The government wouldn't be putting a fourth plan in place
if it didn't think there was some chance that it would be
needed.... So I think we're going to get another round of bad
news and I would be a buyer on dips here in the dollar."
The euro, meanwhile, gained despite remarks from European
Central Bank Executive Board member Lorenzo Bini Smaghi, who
was quoted as saying the bank was prepared to cut interest
rates to zero if deflation threatens and the economic situation
worsens [].
Lower rates typically make securities in that currency less
attractive and reduce demand for the currency to buy them.
The market showed little reaction to comments by Federal
Reserve Chairman Ben Bernanke that sustainable economic
recovery is out of reach until the U.S. financial system is
stabilized []. But Bernanke's comments reminded
investors that a lot needs to be done by governments worldwide
to emerge from the downturn.
The pound managed to recover from a six-week low against
the dollar, rising as high as $1.3905. It recently traded up
0.1 percent on the day to $1.3777 <GBP=>.
But the rebound was on shaky ground, since the currency
shed 2 percent on Monday when Lloyds Banking Group <LLOY.L>
intensified sector worries with its announcement the British
government was taking a stake of up to 77 percent.
The dollar, meanwhile, reversed early gains against the yen
and was last down 0.4 percent at 98.39 yen. The Japanese
currency stayed weaker versus a broadly stronger euro at 125.14
yen <EURJPY=>.
The yen has fallen in the past month as Japan grapples with
diving exports and the worst recession of the postwar era. Its
current account balance swung to the largest deficit on record
in January, adding to selling pressure.
(Reporting by Nick Olivari and Gertrude Chavez-Dreyfuss;
Editing by Kenneth Barry)
