By Ben Levisohn June 11 (Bloomberg) -- The dollar rose against the euro for the first time in four days as an unexpected drop in U.S. retail sales increased concern the global economic recovery may not be sustainable, boosting the currency’s appeal as a haven. The greenback gained against most major currencies even as other data showed U.S. consumer confidence rose to its highest level since 2008. The pound weakened against all of its major peers after U.K. manufacturing unexpectedly declined. Australia’s dollar dropped versus its American counterpart as inflation in China fanned concern the nation may move to cool its economy. “The market is very vulnerable to bad news,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “The main bad news came from the U.S. in the form of the retail sales report. Chinese data was strong, and that’s prompted fears of further policy tightening. That data mix today was negative for risk appetite.” The dollar gained as much as 0.7 percent to $1.2045 per euro before trading at $1.2113 at 4:33 p.m. in New York, up 0.1 percent from $1.2124 yesterday. It dropped 1.1 percent for the week. The greenback gained 0.4 percent to 91.72 yen, from 91.34 yen. The euro rose 0.2 percent to 110.97 yen, compared with 110.72 yen, and gained 0.9 percent for the week. “The data came out and the dollar reacted accordingly,” said John Doyle, a strategist at currency-trading firm Tempus Consulting Inc. in Washington. “The dollar has a bit more to go, and we’re bearish on the euro.” The euro has dropped 9.6 percent this year for the worst performance among its developed-world counterparts, according to Bloomberg Currency Correlation-Weighted Indices. The dollar has strengthened 9.1 percent. Retail Sales U.S. retail sales decreased 1.2 percent in May, the biggest drop since September 2009, following a 0.6 percent April gain that was larger than previously estimated, Commerce Department figures showed today in Washington. The median forecast in a Bloomberg News survey was for a 0.2 percent increase last month. “The consumer is much weaker than we thought,” said Sebastien Galy, a currency strategist at BNP Paribas in New York. “People are trying to trade risk aversion. They’re going to buy dollars and sell emerging markets.” The Thomson Reuters/University of Michigan index of consumer sentiment increased to 75.5 in June, the highest level since January 2008, from 73.6 the previous month. The Australian dollar declined 0.1 percent to 84.95 U.S. cents after earlier losing as much as 0.9 percent, the first drop in four days, as China’s statistics bureau reported inflation in the nation accelerated in May to the quickest pace in 19 months, more than economists expected. China is Australia’s biggest trading partner. ‘Risk Aversion’ “Higher Chinese inflation may lead to earlier-than- expected rate hikes or revaluation of the currency,” said Masafumi Yamamoto, chief currency strategist at Barclays Plc in Tokyo. “This may lead to some risk aversion, so after building long positions on the Aussie and kiwi, the news may have caused some profit-taking.” A long position is a bet a currency will strengthen. New Zealand’s currency rose against all of its 16 most- traded counterparts as investors speculated the central bank may follow up this week’s 0.25 percentage point boost in the key interest rate with more increases in the months to come. Reserve Bank of New Zealand Governor Alan Bollard yesterday raised the official cash rate to 2.75 percent and predicted inflation will jump to 5.3 percent in the year to June 2011 from 2 percent due to a sales-tax increase. The central bank will further boost the rate to at least 4.75 percent by December next year, according to a Bloomberg News survey of 12 economists. New Zealand’s dollar rose 0.6 percent to 69.06 U.S. cents and appreciated 0.8 percent to 1.7522 per euro. Pound Falls Sterling pared its first weekly gain in more than a month against the dollar as U.K. factory output fell 0.4 percent in April from March, the Office for National Statistics said today in London. Economists estimated it would increase 0.5 percent, according to a Bloomberg survey. Investors were “spooked by the reading,” Andrew Wilkinson, senior market analyst at Interactive Brokers Group Inc. in Greenwich, Connecticut, wrote in a report today. “The pound has lost some of its luster.” The pound tumbled 1.1 percent versus the dollar to $1.4551, leaving its increase for the week at 0.7 percent. It lost 0.9 percent today and 0.5 percent this week to 83.17 pence per euro. Yuan Forwards Yuan forwards rose to the highest level this month a day after Treasury Secretary Timothy F. Geithner said China’s exchange-rate policy prevents a balanced global recovery and urged a stronger yuan to help contain inflation in the world’s third-largest economy. “The distortions caused by China’s exchange rate spread far beyond China’s borders and are an impediment to the global rebalancing we need,” Geithner said in testimony to the Senate Finance Committee. China’s commerce ministry said hours later the yuan’s peg to the dollar remains unchanged and the country’s policy was made clear to the U.S. in talks last month. The yuan’s 12-month non-deliverable forwards touched 6.7335 per dollar today, the strongest level since May 28. To contact the reporter on this story: Ben Levisohn in New York at blevisohn@bloomberg.net;

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