By Laura Mandaro, Polya Lesova & William L. Watts, MarketWatch SAN FRANCISCO (MarketWatch) -- The U.S. dollar fell against most major currencies Wednesday, but rose against the Japanese yen, as progress toward a $15-billion federal bailout for the nation's auto industry buoyed risk appetite among investors. The dollar index , a measure of the greenback against a trade-weighted basket of six currencies, fell 0.5% to 85.48 in afternoon trading Wednesday. On Wall Street, U.S. stocks rose on optimism about a government bailout of the U.S. auto industry. See Market Snapshot. House Democrats said they were planning to hold a vote later Wednesday on $15 billion in bridge loans for the struggling U.S. auto industry after they reached agreement on the aid with the White House, even as some Senate Republicans said they were wary of the plan and threatened to block it. See story on car maker bailout. The rise in risk appetite is seen as a negative for the greenback, which, along with the Japanese yen, gets a boost when investors seek to park money in safety assets. "The rally in equities this morning has driven major currencies higher against the U.S. dollar and Japanese yen, but it remains to be seen whether the improvement in investor sentiment will last," said Kathy Lien, director of currency research at Global Forex Trading. The euro rose 0.7% against the dollar to $1.3016, while the British pound was up 0.2% to $1.4788. The dollar did make headway against the Japanese yen, rising 0.3% against the Japanese currency to 92.59 yen. The gain added to a weeklong respite from several months of declines. The U.S. dollar has lost 2.6% against the Japanese unit this month and is down 13% since the end of September. "The yen continues to have the last word as foreign-exchange desks remain reluctant in selling the risk-driven currency in a treacherously thin trading environment," said Ashraf Laidi, chief market strategist at CMC Markets. If the U.S. dollar falls below 90.90 yen, it would take the currency pair to a 13-year low, noted Lien. The U.S. dollar is at risk of falling further as the Federal Reserve contemplates more cuts to its benchmark fed funds rate, now at 1%. Many economists see the Fed cutting by at least another hal- point next week. See related story on interest-rate cuts. In the commodity markets Wednesday, oil and gold futures posted strong gains. See Futures Movers. Italian GDP contracts Earlier Wednesday, Italy's statistical agency reported the nation's economy had deteriorated more sharply than originally estimated in the third quarter. Istat said Italian GDP shrank 0.5% in the third quarter, the largest fall since 1998. That follows a 0.4% drop in the second quarter. A recession is commonly defined as at least two consecutive quarters of shrinking GDP. "The euro's quiet comeback remains underway, as the currency builds gradual but modest gains when the onus of negative data is released from the U.K. and the U.S.," Laidi said. "Although the euro zone continues to see its share of recession-like figures, it has been largely devoid of shocking data as those seen in the U.S. or U.K.," he said, referring to Italy's GDP data. Marco Valli, chief Italian economist at UniCredit MIB in Milan, said that the downturn for the euro zone's third largest economy is expected only to intensify in the fourth quarter given a run of dismal industrial production data and activity surveys, leaving potential for a 1% quarterly fall in the October-December period.

Source