The U.S. dollar extended gains versus the euro and was higher against most other rivals Monday, after an index of leading indicators signaled the U.S. recession could last through the summer and U.S. stocks deepened their slide. Earlier, the euro had tumbled against the greenback, adding to last week's losses, after the head of the European Central Bank signaled that policy makers are weighing a further rate cut. The European single currency bought $1.2904, down from $1.2975 earlier, for a loss of more than 1% for the day. It was the first time in five weeks that the euro traded below $1.30. On a light day for economic releases, the Conference Board said its index of leading economic indicators fell 0.3% in March, slightly worse than forecasts. The private group said the recession may continue through summer. Currency traders also took note of action in U.S. equity markets, where the benchmark indexes tumbled after six straight weeks of gains. The Dow Jones Industrial Average was recently off more 230 points, or 2.8%, at 7,900. The S&P 500 fell 3.2%. The greenback and the Japanese yen have tended to benefit from bouts of pessimism over the economy. The U.S. dollar has also maintained a largely inverse relationship with equity markets, rising when shares fall as investors move out of riskier assets. See full story. But that opposite relationship with stocks may be breaking down somewhat: The dollar had pushed higher last week despite gains in equity markets. The dollar index , which tracks the greenback against a trade-weighted basket of rival currencies, pushed higher to 86.835, up from 86.424 earlier. It finished last week below 86.00. Trichet suggests another cut Remarks from European Central Bank President Jean-Claude earlier weighed on the euro. "We have decided already to embark on nonstandard measures to cope with the situation since mid-September 2008," ECB President Jean-Claude Trichet said in an interview with Nikkei, published on the Japanese business daily's Web site in a report dated Monday. See full story. Trichet also said the central bank's key lending rate could be cut by a 0.25 percentage point at the meeting. That would bring the rate to 1% from 1.25%. Strategists at Commerzbank said further downside for the euro may prove limited ahead of the release of key economic indicators this week: Tuesday's ZEW index of German investor confidence, Thursday's surveys of euro-zone purchasing managers, and Friday's release of the closely watched Ifo index of German business confidence. The data "should confirm the view that the medium-term outlook for the economy has stabilized," they wrote. That would likely mean that any measures that the ECB might take would remain limited to extending the maturity of refinancing operations and broadening the range of collateral eligible to be used in repo transactions, they said. Accordingly, the Commerzbank strategists played down prospects for a more aggressive strategy of quantitative easing. Yen gains Meanwhile, the dollar lost ground against the Japanese currency, trading at 98.33 yen, down 0.7% from Friday. Strategists at BNP Paribas said the dollar's ability to climb reflects the role of corporate-bond-market flows and predicted it "will remain in demand as corporate-bond markets see further signs of improvement. "Corporate-bond-market flows had been the dominant contributor to funding the U.S. current-account deficit ahead of the financial crisis in 2007, with most U.S. inflows generated from Europe," they wrote. "The corporate-bond market has rallied and [the euro] turned south (versus the dollar) three weeks ago, exactly at the time when corporate bonds played catch-up with the better equity market outlook." Also on the move, the British pound fell 1.9% to $1.4527. The euro rose 1% against sterling to a price of 88.89 pence. The pound rallied during the early part of April but proved unable last week to extend gains above important resistance around the $1.50 level. Economists at Lloyds TSB said sterling may be seeing some pressure due to expectations that the release of the British government's budget for the current financial year will significantly boost public borrowing.

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