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Dollar gains on euro as US stocks rally

NEW YORK: The dollar pushed higher against the euro on Monday as Wall Street rallied on news that Internet access provider America Online Inc. and media giant Time Warner Inc. planned a $164 billion mega-merger.

"The US stock market is the key," said David Gilmore, partner at Foreign Exchange Analytics in Essex, Connecticut. "We're unwinding the damage from last week."

Giving the dollar a boost, the Dow Jones industrial average closed at a record 11,572 points, up 0.43 percent, after America Online announced it planned to buy Time Warner. The technology-heavy Nasdaq composite index had its biggest points gain ever of 167 points, or 4.3 percent.

But the US currency softened a touch against yen as dealers booked profits after the dollar's strong run last week. Trading volumes were thin due to a market holiday in Tokyo.

At the close late US trade, the euro stood at $1.0253 against the dollar, down a third of a percent from Friday's closing level, while the dollar edged down to 105.10 yen, off a quarter of a percent.

The common currency is down some 1.5 percent from the seven-week peaks it hit against the dollar just four trading days ago when optimism about Europe's economy and a jitters about Wall Street losses had driven the euro sharply higher.

The euro brushed off words of comfort from European Central Bank Vice President Christian Noyer, who said at the bank was "very confident" the euro will continue to appreciate this year.

Noyer, speaking on the sidelines of a conference on International Monetary Policy, also said the euro's current level did not fully reflect the potential of Europe's economic outlook.

Earlier, forecasts from ECB chief economist Otmar Issing that EMU-11 growth may be stronger than expected also fell on deaf ears. There was little reaction to news of higher inflation rates in Germany at the end of last year, especially as Issing said an uptick at the start of 2000 was no reason to worry.

"Time and time again, the price action demonstrates that strong Euroland growth is insufficient to trigger a sustained rebound in the currency," said Paul Meggyesi, senior currency strategist at Deutsche Bank in London.

Dealers predicted the dollar would drift in a range against the euro, possibly probing support in the $1.02 area in the days ahead.

Meanwhile the dollar ceded some of the 4.5 percent it gained against the yen last week, but it was still up 3 percent from the lows it set on the first trading day of 2000.

The euro also slipped against the yen, shedding more than half a percent from Friday's closing levels, but it was still up 4 percent higher since the start of the year.

Traders said the yen's recovery against the dollar and euro was mainly a technical correction, adding there had been little fallout from the weekend meeting of deputy finance ministers and central bankers from the Group of Seven leading industrial nations.

The Kyodo news agency reported Japan had urged other nations to cooperate in efforts to bring down the yen's value. But although traders said joint intervention remained unlikely, some niggling worries remained. "Fear of possible concerted intervention is helping to keep the yen rangebound," said John Schein, vice president at Fortis.-Reuters