MW: Dollar eases as Citi plan revives risk appetite
By Lisa Twaronite, Deborah Levine & William L. Watts, MarketWatch
SAN FRANCISCO (MarketWatch) -- Investors' risk appetite returned with a vengeance Monday in the wake of the U.S. government's rescue of Citigroup Inc., sending stocks sharply higher and pressuring the dollar and the yen against other currencies.
Authorities agreed Sunday night to rescue Citigroup with a plan that includes a $20 billion capital infusion, guarantees for as much as $306 billion of Citi's troubled assets, government control of executive bonuses, and limits on dividend payments. See full story.
"The dollar and yen are the biggest casualties of the government's latest rescue package to a struggling U.S. bank," said Ashraf Laidi, chief foreign exchange strategist at CMC Markets US.
The dollar index , a measure of the greenback against a trade-weighted basket of six major currencies, fell to 85.912 from 87.658 in late North American trading .
The euro was buying $1.2905, up from $1.2587 late Friday.
The dollar gained against the Japanese currency to 97.02 yen from around 95.92 yen Friday. The yen also lost ground against the euro, which surged 3.6% to 125.07 yen.
On Wall Street, all three major stock indexes rallied. See Market Snapshot.
"Today's sell-off in [the] U.S. dollar and the equity bounce are welcome reprieves, but do nothing to undermine an overall bullish U.S. dollar stance," said David Watt, senior currency strategist at RBC Capital Markets, in a note to clients Monday.
Risk aversion also faded as President-elect Barack Obama announced his appointments for Treasury secretary and other key economic posts. See full story.
Earlier Monday, European shares rallied to one of their best one-day performances ever, after the Citi and Obama announcements. See Europe Markets.
U.K. stimulated
The British pound jumped to $1.5150, up from $1.4933 Friday, as the U.K. government announced its own economic stimulus plan.
The government unveiled a $20 billion pound economic stimulus plan, saying the economy is likely to shrink up to 1.25% in 2009.
The plan centered on a reduction in the value-added tax, or VAT, charged on most goods and services from 17.5% to 15%, beginning on Dec. 1. See full story.
The euro sank briefly Monday after the Munich-based Ifo Institute's November business-climate index showed a steeper-than-expected drop to a 15-year low of 85.8.
Economists said the data underlined a deteriorating outlook for the largest economy in Europe and the euro zone, and signaled that the region's resilient labor market is likely to begin to suffer significantly in coming months.
"The upshot is that the recession is becoming increasingly entrenched, with more pain to consumers lying ahead," said Tulia Bucco, an economist with UniCredit MIB in Milan.
