The dollar rose versus the euro on Tuesday as signs of improving consumer confidence in the United States combined with worries about Germany's banks hurt the European currency after a rally last week. The euro was also hit by weak economic data, while investors awaited a U.S. debt auction to gauge foreign appetite for the greenback. The dollar traded at five-month lows last week, pushed lower in part by concerns that soaring deficits may threaten the United States' 'AAA' sovereign debt rating. A new test of investor appetite for dollar assets will come this week as the U.S. Treasury auctions $101 billion in new debt. For now, though, the dollar got a reprieve after a private business research group reported a measure of U.S. consumer confidence rose in May, beating economists expectations, and sending stocks in Wall Street higher. "The consumer confidence number was tremendous. That's a key piece for boosting risk appetite," said Melvin Harris, market strategist at Advanced Currency Markets in New York. In trading just before midday in New York, the euro was down 0.2 percent to $1.3893, after touching a session low of $1.3859, according to Reuters data. The euro rose as high as $1.4051 on Friday on trading platform EBS, its highest since early January, marking a rise of about 8 percent from $1.30 in the past month. British media reported that Germany's financial regulator had warned that toxic debt of the country's banks would blow up "like a grenade" unless they took advantage of government bad bank plans. "The euro really sold off earlier after reports on the German banking system, but in the U.S., with the absence of significant data releases, the focus will be on the supply side with the Treasury auctions," said George Davis, a director for foreign exchange at RBC Capital Markets, in Toronto. The U.S. government will sell two-year notes on Tuesday, five-year notes on Wednesday and seven-year paper on Thursday. Davis said weaker-than-expected foreign participation in this week's Treasury auctions could spur euro buying back to the $1.4050 level. The dollar index .DXY, a gauge of the greenback's performance against six other major currencies, was up 0.2 percent on the day at 80.153. On Friday, it fell to a 2009 low of 79.805, a day after a downward revision on the outlook for Britain's AAA sovereign rating prompted speculation the U.S. government debt may lose its top-notch rating. Against the yen, the dollar was little changed at 94. 86 yen, erasing earlier losses prior to the consumer confidence report. The Conference Board's U.S. consumer confidence index rose in May to 54.9 from a upwardly revised 40.8 in April. Economists polled by Reuters had forecast a reading of 42.0 for the May index.

Source