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News // Markets & Stocks

Dollar jumps on Geithner report

21 October 2010 , 10:43Reuters2095

In an interview published in the Wall Street Journal on Thursday, Geithner suggested that he saw no need for the dollar to sink further against the euro and the yen, causing the dollar to spike half a yen and climb rapidly against the euro.

The dollar rose as far as 81.84 yen from about 81.00 yen before Geithner's comments came out while the euro fell 0.6 percent in a matter of minutes as the market, taking the comments to imply that the dollar did not need to fall further, covered dollar short positions.

By late morning, however, it pared some of its early gains, and the dollar index .DXY against a basket of major currencies was up 0.2 percent.

The drop in the yen, which is still near 15-year highs against the U.S. currency, briefly pulled Japan's benchmark Nikkei N225 out of negative territory before slipping back 0.3 percent.

"The Nikkei rebounded strongly after the dollar jumped against the yen on Geithner's comments," said Takashi Ohba, senior strategist at Okasan Securities.

"This could have prompted active short-covering by foreign players who were detected selling Nikkei futures heavily the previous day."

The MSCI index of Asia shares outside of Japan also weakened slightly, shrugging off overnight gains on Wall Street as traders took profits after a strong run-up in September and early October.

Talk of competitive currency depreciation has flared ahead of a G20 finance ministers meeting this week and a G20 summit next month, as developed countries keep monetary policy extremely easy to shore up sluggish growth and as capital flows in search of better yields push up currencies in faster growing emerging economies.

"It's become a bit difficult to test the dollar's downside for now," said Katsunori Kitakura, chief dealer at Chuo Mitsui Trust Bank.

"It seems as if the G7 has formed a united front ahead of the G20 meeting, as he's saying he's mainly focusing on emerging economies when it comes to currencies."

CHINA GROWTH COOLS A BIT BUT STILL ROBUST

The Shanghai stock market SSEC briefly turned positive after data showed China's economic growth ebbed in the third quarter and inflation edged just a touch higher. But Shanghai quickly surrendered the gains and was down 1.3 percent by midday, helping pull Hong Kong shares HSI lower.

The Chinese data was broadly in line with forecasts, suggesting that a surprise interest rate rise from this week may be enough for now, but markets remain wary of further policy tightening by the central bank.

Economic growth slowed to 9.6 percent in the third quarter from a year earlier, down from 10.3 percent in the second quarter. Analysts had expected a 9.5 percent pace.

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