* Dollar index hits one-year high on Freddie, Fannie news
* Takeover seen bolstering U.S. economic recovery
* Yen, Swiss franc slide broadly on renewed risk appetite
(Updates prices, adds comment, changes byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, Sept 8 (Reuters) - The dollar climbed to a
one-year peak versus a basket of currencies on Monday, as
investors cheered the government's takeover of the two biggest
mortgage finance agencies in a bid to restore confidence in the
U.S. financial sector.
The bailout of the beleaguered Freddie Mac <FRE.N> and
Fannie Mae <FNM.N>, which own or guarantee half of the United
States' $12 trillion in outstanding home mortgage debt, also
prompted investors to wade back into risky trades, by buying
higher-yielding currencies and selling the yen.
Overall, analysts viewed the U.S. Treasury move as a
positive step in staving off wider financial and housing market
weakness.
"On balance, the takeover of Fannie and Freddie is a net
positive for the U.S. dollar because it shores up confidence in
the U.S. financial sector," said Omer Esiner, a senior market
analyst, at Ruesch International on Washington.
"Having said that, I don't think the government action
represents a silver bullet for all the problems facing the
housing market and the economy. There are still so many
questions about this bail-out."
In midday trading, the U.S. dollar index on the ICE Futures
Exchange, which measures the value of the dollar against a
basket of six currencies, surged to a one-year high of
79.416<.DXY>, according to Reuters data. It was last up 0.9
percent at 79.206.
The euro fell to $1.4164 <EUR=>, the lowest in nearly 11
months. It last traded at $1.4198, down half a percent from
late on Friday.
The dollar initially fell in the aftermath of the weekend
action as investors took the government's takeover of the
stricken government-sponsored enterprises (GSEs) as an excuse
to buy riskier assets, sending stock markets soaring and the
low-yielding Japanese yen sharply lower.
The dollar last traded up 0.3 percent at 108.46 yen <JPY=>.
The euro was slightly down versus the yen at 153.67 <EURJPY=>.
BUDGET IMPLICATIONS OF BAIL-OUT
But while the news did much to alleviate concern about
systemic financial market risks, it did little to change
fundamentals that had started to drive the dollar higher prior
to the weekend -- slowing growth in the euro zone and the UK.
And this should mean continued dollar gains in the weeks
ahead.
Some analysts though have expressed reservations about the
latest U.S. government move and were not ruling out a
correction in the dollar's bullish trend of the past month.
Analysts at Wells Fargo said the potential costs to the
taxpayer could be substantial and unwelcome in an economic
slowdown where the U.S. Treasury has limited scope for fiscal
maneuver.
"We do believe...that the dollar's surge has gotten ahead
of itself and, as significant as today's announcement is, it is
not clear it will provide all the answers to the mortgage
market's difficulties," Wells Fargo said in a research note.
"As initial euphoria gives way to measured sentiment, we
still see potential for a sizable dollar correction in coming
weeks, with the euro gaining towards the high $1.40s."
In the wake of the Fannie and Freddie takeover, U.S.
Treasuries sank and U.S. and European shares rallied.
Sterling reversed earlier gains versus the dollar after UK
manufacturing output prices suggested factory gate inflation
might have peaked. The pound <GBP=> was last down 0.2 percent
at $1.7617. The euro <EURGBP=> was down 0.2 percent at at 81.90
pence.
The improvement in investors' appetite for risk pushed the
New Zealand dollar <NZD=> up 0.6 percent at US$0.6729, while
its Australian counterpart <AUD=> rose 0.4 percent to
US$0.8191. The two currencies also posted big gains versus the
yen.
The dollar also gained 0.7 percent against the low-yielding
Swiss franc to 1.1263 francs <CHF=>.
(Additional reporting Lucia Mutikani; Editing by Richard
Satran)
