The dollar fell after a report showed China’s economy, the world’s third-largest, may be recovering from its deepest slump in almost a decade, sparking demand for commodities and higher-yielding assets. The Russian ruble rose to its strongest level since January as manufacturing in China expanded for a third month. The dollar weakened against all but one of the 16 most-traded currencies, led by a 1.6 percent drop against the Norwegian krone and a 1.5 percent decline versus the Australian dollar, as stocks and commodities advanced. The euro climbed to a five-month high against the U.S. currency and the pound traded at its strongest level versus the dollar since Oct. 31. “Risk is on following the smaller-than-anticipated dip in China’s manufacturing PMI,” Steven Pearson, head of Group of 10 currency strategy in London at Bank of America-Merrill Lynch, wrote in a report today. “Investor confidence in an Asia-led economic recovery has been buttressed. Currencies perceived to have a high sensitivity to the global cycle have outperformed significantly.” The dollar weakened to 94.6 yen as of 6:38 a.m. in New York, from 95.34 yen in New York at the end of last week. The U.S. currency depreciated to 6.1939 krone, from 6.2903, and to 81.23 cents against the Australian dollar, from 80.11 cents. Against Russia’s currency, the dollar dropped 1.1 percent to 30.6257 rubles, the lowest level since Jan. 9. The euro advanced for a third day versus the dollar, strengthening 0.5 percent to $1.4227, the highest level since Dec. 29. The greenback slid 1.2 percent to $1.6398 per pound, after earlier breaching $1.64 for the first time since Oct. 31. Stocks Advance The Dollar Index declined to the lowest level this year as the U.S. government said it will own a majority of General Motors Corp. after the carmaker filed for bankruptcy, heightening concern about record debt sales to fund bailout packages and economic stimulus programs. Stocks in Europe and Asia, and U.S. stock-index futures advanced. The Dow Jones Stoxx 600 Index of European shares climbed 2.1 percent, and the MSCI World Index gained 1.3 percent. Futures on the Standard & Poor’s 500 Index rose 1.6 percent. Crude oil rose 2.6 percent to $68.14 a barrel. “The good data in China has spurred on the positive moves in the equity market, which in turn fuel the positive sentiment generally,” said Simon Derrick, chief currency strategist in London at Bank of New York Mellon Corp., the world’s largest custodian of financial assets. “There has been a steady and continuous move by international investors out of the safe-haven assets they bought at the end of last year and the beginning of this year, looking for higher-performing markets.” Australian Dollar The Purchasing Manager’s Index fell to a seasonally adjusted 53.1 in May, from 53.5 in April, the Federation of Logistics and Purchasing said today in Beijing. A reading above 50 indicates expansion. Australia’s dollar touched the strongest since September as prices of raw materials, which account for more than 50 percent of the country’s exports, climbed in May by the most since 1974 amid concern the largest-ever U.S. budget deficit will devalue the greenback. The so-called Aussie surged by a record last month partly as investors sought higher-yielding assets. The central bank will keep Australia’s main interest rate at 3 percent, the highest level among industrialized nations, at a meeting tomorrow, according to a Bloomberg survey of economists. The main interest rate in Japan is 0.1 percent. The U.S. key rate is as low as zero. Dollar Index The Dollar Index, used by the ICE to track the greenback against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, fell 0.8 percent to 78.683. The dollar weakened to higher than $1.42 per euro for the first time since Dec. 30 after the Congressional Budget Office projected the U.S. deficit will quadruple to about $1.8 trillion. “The trend is for a decline in the dollar on the deteriorating quality of U.S. government debt,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment-banking unit of Credit Agricole SA. “The market is very skeptical of the growing budget deficit.” Treasury Secretary Timothy Geithner, visiting China this week, said the U.S. wants to reduce the budget gap as soon as an economic recovery takes hold. Geithner is in Beijing to persuade China, the biggest foreign holder of Treasuries, to keep buying the securities. The U.S. goal is a deficit of “roughly 3 percent” of gross domestic product, Geithner reaffirmed today in a speech at Peking University in Beijing. Euro Weakens The euro fell against 12 of the 16 major currencies on speculation European policy makers meeting on June 4 will announce additional measures to spur growth in the region. “There is the risk that the European Central Bank will expand its quantitative easing program,” which may be weighing on the euro, said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. ECB President Jean-Claude Trichet said last month the bank would buy 60 billion euros ($85 billion) of covered bonds. The Federal Reserve, the Bank of England and the Bank of Japan are already buying government and corporate bonds in a policy known as quantitative easing. The ECB will keep the main interest rate unchanged at 1 percent at the meeting, according to a Bloomberg survey of economists.

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