The euro rose close to a two-week high against a broadly lower dollar on Monday on reports the U.S. government is to take a large stake in struggling lender Citigroup (C.N: Quote, Profile, Research, Stock Buzz). Investors hoped this marked a step in the right direction as the U.S. attempts to stave off a deep recession. The news dented the dollar because of its appeal as a safe haven asset, taking the euro to a 12-day high close to $1.30, while European stocks rose over 1 percent .FTEU3 and currencies perceived to be higher-risk gained. Rising stocks helped the euro rise to a one-month high versus the Japanese yen, which also tends to gain in times of heightened risk aversion. Citigroup is in talks that could lead to the government owning as much as 40 percent of the ailing U.S. financial giant, though Citi executives hope to limit the government's stake closer to 25 percent, the Wall Street Journal reported. The U.S. government would take the stake by converting preferred stock into common stock, the report said. "People are arguing that this move will give the U.S. government the right tools to manage the recession situation," Commerzbank head of FX research Ulrich Leuchtmann said. "The dollar has been a safe haven during the economic downturn and it tends to fall on good news," he said. At 0845 GMT (3:45 a.m. EST), the euro was up 0.7 percent at $1.2930, having earlier hit a session high of $1.2991. The dollar index .DXY fell 0.6 percent to 86.088. Among currencies perceived to be higher risk, sterling gained 0.8 percent to $1.4552 and the Australian dollar rose 1.1 percent to $0.6533. Against the yen, the euro rose 1.6 percent to a one-month high of 121.32 yen and the dollar gained 0.4 percent to 93.54 yen. The yen reversed some of last week's falls, when a deteriorating Japanese economic and political outlook damaged its perceived safe-haven status. EURO SUPPORT In addition to the slight improvement in investor risk appetite, hopes for a potential plan to help the weakest euro zone economies have also lent the euro support. On Friday, Germany's foreign minister said authorities were considering how financially strong euro zone economies could aid weaker members. But analysts said there was disappointment that the weekend's meeting of G20 leaders failed to yield any concrete agreement on ways to deal with the recession. "There was disappointment that the main focus of the G20 meeting was on financial market regulation, which is not the most important problem at a time of global recession," Commerzbank's Leuchtmann said. Analysts also noted that the easing in risk aversion is likely to be short-lived as fears of a deep recession and lingering concerns about banking sector health and troubles in eastern Europe return to haunt the markets. "The increasing moves toward nationalization of the banking sector in the U.S. has been putting the dollar under some pressure," said Ian Stannard, senior foreign exchange strategist at BNP Paribas. "As we have seen previously this positive effect (news of capital injections in to banks) has a very limited and short lived effect on markets," he said.

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