AFP: Euro gains after Australian interest rates held
The euro rallied against the dollar on Tuesday as an Australian decision to hold interest rates sparked renewed demand for risky assets, analysts said.
The single currency also clawed back ground after Monday's dramatic plunge on Wall Street had sent investors scrambling for the safe-haven greenback.
In late morning trading in London, the euro rose to 1.2646 dollars from 1.2578 late on Monday.
Against the Japanese currency, the dollar firmed to 97.72 yen from 97.49 yen on Monday.
The Reserve Bank of Australia's (RBA) decision caught players off guard as most had expected a 25 basis point rate cut from the current level of 3.25 percent.
The Australian dollar also gained against the greenback and the yen as the decision fuelled hopes that the economic outlook might not be as gloomy as feared, triggering buying of the euro and other risk-sensitive currencies.
"The recent surge for the (US) dollar was today halted by the decision of the RBA in Australia to announce an unchanged monetary stance at the end of its meeting, the first unchanged decision since July 2008," said economist Derek Halpenny at The Bank of Tokyo-Mitsubishi UFJ in London.
Wall Street shares had plunged Monday to a fresh 12-year low as investors took fright at the woes of US insurer American International Group and British bank HSBC.
Dealers were looking ahead to Thursday's meeting of the European Central Bank, which is widely expected to slash its key lending rate by 50 basis points to 1.50 percent.
The European Union's recent rejection of a proposed bailout package for Eastern Europe also weighed on the euro, analysts said.
Elsewhere, Japan said Wednesday it would use five billion dollars from its currency reserves to help companies raise funds as auto giant Toyota Motor asked the government for financial aid.
Tokyo's decision to dip into its one-trillion-dollar foreign exchange reserves underscores growing fears that a funding squeeze is deepening the country's worst recession in decades.
Finance Minister Kaoru Yosano described the move as an "extraordinary measure" in response to severe market conditions.
The euro was changing hands at 1.2646 dollars against 1.2578 dollars late on Monday, at 123.58 yen (122.67), 0.8960 pounds (0.8949) and 1.4814 Swiss francs (1.4788).
The dollar stood at 97.72 yen (97.49) and 1.1715 Swiss francs (1.1755).
The pound was at 1.4112 dollars (1.4052).
On the London Bullion Market, the price of gold dropped to 924 dollars an ounce from 937.25 dollars on Monday.
