* Fed begins two-day meeting; to make statement Wednesday
* Euro at 2-1/2-month low vs dollar on bank, fiscal worry
* German investor sentiment decline prompts euro selling
* U.S. PPI data above forecast, NY Fed data disappoints
* Year-end short covering boosts dollar broadly
(Recasts, updates prices)
NEW YORK, Dec 15 (Reuters) - The dollar gained on Tuesday,
touching a 2-1/2-month peak against the euro on concerns about
euro zone banks, while strong U.S. inflation data, suggesting
the Federal Reserve could raise interest rates sooner than
anticipated, sent the greenback higher against the yen.
The Fed, which ends a two-day policy meeting on Wednesday,
has said rates are likely to remain very low for an extended
period. Any hints to the contrary would increase the dollar's
appeal by raising the return on dollar-denominated assets.
Data on Tuesday showed U.S. producer prices rose 1.8
percent last month, the largest gain in three months. That
pushed up U.S. bond yields and came on the heels of stronger
U.S. employment and consumer spending data. For more see
[].
"We've had a string of very good U.S. data releases
compared to Europe, and today's data suggests inflation is
picking up again, so the whisper out there is that the Fed will
hike rates sooner than expected," said Michael Woolfolk,
currency strategist at BNY Mellon in New York.
Economists polled by Reuters expect data Wednesday to show
U.S. consumer prices rose 0.4 percent overall in November.
The euro fell to $1.4504 <EUR=>, according to Reuters data,
its lowest since early October. It last traded down 1 percent
at $1.4515.
A closely-watched survey that showed German investor
sentiment soured in December hurt the euro, as it suggested a
sluggish recovery for the euro zone's top economy.
[]
EUROLAND BANK, FISCAL WORRIES
Also weighing on the euro were a report saying Austrian
monetary authorities had put the country's No. 4 bank on a
watch-list and ongoing worries about the weak fiscal positions
of some euro zone countries. After having its credit rating cut
last week, Greece announced spending cuts Monday aimed at
reining in its debt. [] and []
"Problems in Greece continue, and the news about the
Austrian bank hasn't helped either," said Ian Stannard,
currency strategist at BNP Paribas in London.
The dollar soared 1.4 percent to 89.80 yen <JPY=> and 1
percent to 1.0419 Swiss francs <CHF=>, while sterling fell 0.4
percent to $1.6240 <GBP=>.
The Fed's ultra-low interest rate policy has kept the
dollar under pressure for most of 2009. Though it hit a
2-1/2-month high against a basket of major currencies on
Tuesday <.DXY>, the dollar has lost some 5 percent in 2009 on
that calculated measure.
Some other central banks have started raising rates. The
Reserve Bank of Australia has led the way in the developed
world with three consecutive rate hikes, bringing borrowing
costs to 3.75 percent.
But on Tuesday, RBA minutes helped push the Australian
dollar down 1 percent to $0.9076 <AUD=>. Analysts said the
minutes from the bank's last meeting were not as hawkish as expected, suggesting it may pause in its tightening cycle.
But the Fed also faces tough choices, analysts said. A
reminder came from a report showing New York state
manufacturing fell unexpectedly this month. []
"Unfortunately the sharp drop in the survey will make it
difficult for the Fed to be anything more than cautiously
optimistic," said Kathy Lien, director of research at GFT Forex
in New York.
For a graphic encompassing stocks, dollar, gold and oil,
illustrating an extension of the breakdown in the correlation
between markets, click http://link.reuters.com/tyg96g
(Reporting by Nick Olivari and Steven C. Johnson; Additional
reporting by Naomi Tajitsu in London; Editing by James
Dalgleish)
