Dollar higher at start of holiday-shortened week

AP News
Posted: Dec 21, 2009 4:42 PM

The dollar edged up Monday as a batch of corporate deals stoked hopes of further mergers and acquisitions in the new year, while fears that the economic recovery in the euro zone is not on a smooth track drove the euro lower.

The dollar has bounced back from 15-month lows against the euro in the last three weeks amid mounting expectations that the U.S. Federal Reserve will start withdrawing its extraordinary liquidity measures and raising interest rates sooner than expected.

Year-end profit taking and position squaring have also contributed to the dollar's recent rise, said Joseph Trevisani, chief market analyst at FXSolutions.

The 16-nation euro fell to $1.4289 in late New York trading from $1.4329 late Friday. Earlier in the session it slid to $1.4262, its lowest ebb since September.

"The euro continues to suffer from a crisis in investor confidence," said Michael Hewson, an analyst at CMC Markets in London.

Last week, the European Central Bank said it was increasing its expectations for total potential write-downs on securities and loans from the euro zone banking sector to 533 billion euros ($764.2 billion) from 488 billion euros for the period between 2007 and 2010. The earlier forecast was from June.

Hewson said fears that euro zone banks could write down another 187 billion euros on bad loans to property companies in eastern Europe was not helping the 16-nation currency amid wider fears it could slow the economic recovery in Europe.

"Against this backdrop the euro could well continue to remain under pressure as we head into this shortened trading week," he said. Many countries are gearing up for the Christmas holidays on Dec. 25.

A wave of corporate dealmaking brought positive momentum to markets Monday. French drug maker Sanofi-Aventis SA announced plans to buy health care products company Chattem Inc. for $1.9 billion, and mining equipment maker Bucyrus International Inc. said it will buy Terex Corp.'s mining equipment division for $1.3 billion. Meanwhile Dutch auto maker Spyker Cars submitted a new offer to buy Saab from General Motors Co.

In other late trading Monday, the British pound fell to $1.6052 from $1.6121 late Friday, while the dollar edged up to 91.15 Japanese yen from 90.40 yen. The dollar rose to 1.0457 Swiss francs from 1.0429 francs, but slipped to 1.0617 Canadian dollars from 1.0656.