NEW YORK (Dow Jones)--The euro rose Tuesday following overnight maneuvering by the central banks of Japan and Australia that helped bolster a view that the common currency likely remains the least flawed bet. The euro hit to a fresh 6 1/2-month peak against the dollar as policy decisions by monetary authorities continued to dominate the foreign exchange market. With U.S.-based quantitative easing expected to resume later this year, the euro remains the current leader in the "least ugly" contest, said Aroop Chatterjee, chief foreign exchange quantitative strategist at Barclays Capital in New York. Significantly, "the [European Central Bank] looks the most likely not to re-start quantitative easing," he said. During Asian trading, the Bank of Japan cut its policy interest rate to virtually zero and announced "comprehensive monetary easing" to spur financial growth, including a Y5 trillion fund to buy private and public sector assets--all of which are strong measures that took financial markets by surprise. The yen responded by declining slightly against the dollar and more so against the euro. In subsequent trading, the yen took back its earlier losses. The Australian dollar fell back from recent two-year highs, after the Reserve Bank of Australia surprised the market by failing to tighten policy. Economists had overwhelmingly forecast the RBA would hike its overnight target by 25 basis points to 4.75%, citing a desire to keep a lid on inflation and act before its commodities-driven economy overheated. In the U.S., the Institute for Supply Management non-manufacturing index is due at 10 a.m. EDT, which will be eyed by dollar watchers weighing the Federal Reserve's next move. Early Tuesday morning, the euro was at $1.3798 from $1.3690 from late Monday, according to EBS via CQG. The dollar was at Y83.28 from Y83.44, while the euro was at Y114.91 from Y114.20. The U.K. pound was at $1.5879 from $1.5837. The dollar was at CHF0.9688 from CHF0.9721. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 77.983 from 78.439. The reason the yen did not move more against the dollar was the Fed is widely expected to conduct its own stimulus program soon, said Beat Siegenthaler, currency strategist for UBS FX in Zurich. "The fact that the yen did weaken substantially against the euro supports this view, and is a move that could extend further," he said. Also, "this is not yet full scale [quantitative easing] on par with what the Fed and [Bank of England] have done," said Credit Suisse foreign exchange analysts in London, referring to the BOJ's moves. Japanese government officials did not rule out more direct intervention. Finance Minister Yoshihiko Noda said he won't leave the strong yen issue to the BOJ completely, saying the government "will also do what's necessary" to prevent the yen from rising sharply, and will "take decisive action" when needed. The euro got some help from the latest euro-zone purchasing managers' index for service industries for September, which was revised up to 54.1. Adding help was Federal Reserve Chairman Ben Bernanke's comments Monday, said analysts, which contributed to the feeling that U.S. asset-purchasing is likely forthcoming, sooner rather than later. Bernanke Monday issued a stern new warning about the huge U.S. budget deficit, saying failure to tackle the problem could have dire economic consequences. Canada Morning The Canadian dollar gained modestly against the U.S. dollar Tuesday, following the broader market pattern of investors dipping a toe into growth-positive currencies. "Markets are generally in a risk-seeking mode, which has helped to push equities and commodities higher and is also benefiting [the Canadian dollar]," said Camilla Sutton, currency strategist at Scotia Capital in Toronto.

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