By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The dollar extended a decline on Tuesday after stronger-than-expected economic data in the U.S. added to better statistics from Asia and Europe, lifting equity markets as investors felt more comfortable wading into riskier assets at the beginning of a new year.
The euro EURUSD +0.93% rose to $1.3046, from $1.2931 in late Monday trade in North America.
The dollar index DXY -0.74% , which tracks the greenback against six rival currencies, fell about 0.7% to 79.680, according to FactSet Research data.
U.S. and U.K. stock and bond markets were closed Monday, though European stocks traded regularly. Currency markets don’t tend to close for holidays.
The euro headed to the highs of the session after the Institute for Supply Management’s U.S. manufacturing index for December rose to 53.9, a little better than some economists expected. See story on ISM.
The key data event of the week arrives on Friday with the release of U.S. nonfarm payrolls and other labor-market figures for December. Read Economic Preview.
The shared currency gained after Germany’s federal labor agency reported that seasonally-adjusted jobless numbers posted a larger-than-expected decline of 22,000 in December, while the adjusted jobless rate fell to 6.8% from 6.9%.
“A better tone for risk is a partial explanation, though with dollar/yen also falling to a five-week low, this is clearly not the whole story,” said Adam Cole, global head of foreign exchange at RBC Capital in London, in emailed comments. “With several major markets still closed (Japan and China notably), and liquidity reported to be extremely poor, however, it would be unwise to read too much into today’s price action.”
U.S. stocks opened with a solid rally for 2012, with the S&P 500 Index SPX +1.99% gaining 2%. Read more on U.S. stocks.
European equities also advanced, with London traders returning after a Monday bank holiday. See more on European stocks.
Analysts cautioned that the euro’s gains could prove fragile as investors eye a slew of upcoming bond auctions by euro-zone sovereigns as European leaders continue to struggle toward a solution as the region’s debt crisis enters its third year.
“With an ECB [European Central Bank] rate decision meeting next week, various meetings between European officials and another EU summit at the end of the month, plus a large bond issuance schedule from the euro area, there’s clearly plenty of event risk in January,” wrote strategists at Lloyds Bank.
The Japanese yen gained, with the dollar USDJPY -0.32% falling to ÂĄ76.67 from ÂĄ76.90 late Monday. The safe-haven yen typically falls when risk appetite is on the rise.
For 2011, the dollar index advanced 1.5% and the euro lost 3.2%. The Japanese yen was the big gainer among major currencies. The dollar fell 5.1% against the yen and the euro EURJPY +0.60% lost 8.2% versus Japan’s currency. Read more about dollar, euro.
Fed minutes on tap
Also, at 2 p.m. Eastern time, the Federal Reserve will release minutes from its policy meeting last month.
The minutes may reveal details surrounding a potential change in the Fed’s communication policy, RBC’s Cole said. One option that’s been floated publicly is that the Fed may publish a range of projections for the fed funds rate based on its inflation and unemployment forecasts. That could push out expectations of the next rate hike, already seen around mid-2013 per the Fed’s latest statement. See the Fed’s December statement.
The British pound gained ground even after a report showed manufacturing contracted at a slower pace last month.
The purchasing managers index for Britain’s manufacturing sector rose to 49.6 from a revised 47.7 in November. Economists had forecast a reading of 47.3. The data indicates the sector continued to contract in December, but at a slower pace. A reading of less than 50 indicates a decline in activity, while a figure of more than 50 signals growth. Read more on U.K. manufacturing PMI.
The British pound GBPUSD +0.90% rose to $1.5615 from $1.5507 Monday.
The Australian dollar AUDUSD +1.37% , which is sometimes seen as a gauge of risk appetite, climbed to $1.0377 from $1.0228.
Deborah Levine is a MarketWatch reporter, based in New York.
William L. Watts is a reporter for MarketWatch in Frankfurt. Michael Kitchen in Los Anglese contributed to this report.
