By Polya Lesova & William L. Watts, MarketWatch NEW YORK (MarketWatch) -- The dollar and the yen lost ground against most major currencies Tuesday, slipping as equity markets rose on a further bounce in risk appetite. The dollar index , a measure of the greenback against a trade-weighted basket of six currencies, fell 1% to 85.07, down from 86.350 late Monday. All eyes Tuesday are on the U.S. presidential election which has pitted Sen. Barack Obama of Illinois, the Democratic presidential nominee, against his Republican challenger, Sen. John McCain of Arizona. Pre-election polls showed Obama holding a strong lead over McCain. Read more. The arrival of Election Day in the U.S. appears to have brought a little bit of relief to markets in general, said Stephen Gallo, head of markets analysis at Schneider Foreign Exchange. James Hyland, a strategist at Wachovia, said that "as the polls open today, risk aversion continues to ease causing the dollar and yen to weaken against all other major currencies." The Australian dollar and New Zealand dollar were the biggest gainers Tuesday, even after the Royal Bank of Australia cut interest rates by 75 basis points. Also, the euro and the British pound surged despite expectations that the European Central Bank and the Bank of England will cut interest rates on Thursday. "Typically, when central banks cut interest rates that currency depreciates, but investors' willingness to take more risk seems to be the overriding theme this week," Hyland said in a research note. The rise in risk appetite boosted emerging-markets currencies, with the Turkish lira soaring 3% against the dollar and the South African rand gaining 2%. On Wall Street, U.S. stocks surged in early trade, with the Dow Jones Industrial Average rising 168 points. In Asia, Tokyo stocks surged, while other regional markets were mixed. See Asia Markets. Euro gains The euro rose 2.4% to $1.2884, up from $1.2641 in North American trade late Monday. The British pound gained 1.6% to $1.5973. The dollar bought 99.50 yen, up from 99.04 yen. "For today we would expect the U.S. dollar to consolidate in European trading as markets will most likely wait for the first results of U.S. presidential election," said Marcus Hettinger, currency strategist at Credit Suisse in Zurich. But strategists said the final outcome of the election wasn't likely to be a major driver for currency markets. "We are in the midst of what looks like a dollar correction lower," wrote currency strategists at Brown Brothers Harriman. "Implied volatility has continued to fall suggesting the euro could move higher in coming days with market participants likely to look past today's U.S. presidential elections toward what could be horrendous jobs numbers on Friday," they said. Strategists at UniCredit MIB noted that the euro failed Monday to hold gains above $1.30, "confirming its intrinsic fragility." Hettinger said attention is likely to turn back to the "synchronized" global growth slowdown in coming weeks, which will likely underpin currencies from countries with current-account surpluses, such as the Japanese yen and the Swiss franc. Australia rate cut The Reserve Bank of Australia cut its cash rate by three-quarters of a percentage point Tuesday to 5.25%, exceeding expectations for a half-point cut. See full story. The yen gained immediately after the move, boosted by expectations that other central banks will also cut sharply and reduce the attractiveness of carry trades, said Alastair Chan, a Sydney-based economist with Moody's Economy.com. The Australian dollar was up 2.4% against the U.S. dollar in recent action at 69 U.S. cents. The Aussie also turned higher against the Japanese unit, rising 2.9% to 68.97 yen.

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