* Dlr attempts poise after biggest 1-day slide since 1985
* Fed stuns markets; decides to buy long-term Treasuries
* Profit-taking tempers dollar's losses for now
* Euro/dlr hits 2-month high, stg/dlr 3-week high
(Changes byline, updates quotes, prices)
By Kirsten Donovan
LONDON, March 19 (Reuters) - The dollar attempted to recover
its poise on Thursday after its biggest one-day loss since at
least 1985 as the Federal Reserve stunned investors by saying it
would buy long-term debt in an effective printing of money.
The Fed will purchase $300 billion of long-dated Treasuries
over the next six months, its first large-scale purchases of
government debt since the early 1960s, while also boosting
buying of mortgage-backed securities and agency debt in its bid
to rescue the economy.
The move raised concerns that a sharp expansion of the Fed's
balance sheet -- which has already doubled in size in the past
six months -- would lead to oversupply of the world's main
reserve currency.
"It's all part of a global process of easing which is
positive for risk assets in the short-term," said Nick Parsons,
head of markets strategy at National Australia Bank.
"The one factor supporting the dollar over the last three
months has been the woeful performance of equity markets and if
this sees a lift in risk appetite ... that is absolutely,
unequivocally negative for the dollar."
The dollar's cachet as a refuge from risk also melted as
stock markets cheered the Fed's attempt to resuscitate lending.
The vix "fear gauge" of equity market volatility fell to its
lowest since late January on Wednesday.
U.S. Treasuries surged, causing the biggest one-day drop in
10-year yields since the 1987 stock market crash, compounding
the dollar's woes.
The dollar index <.DXY>, a gauge of its performance against
a basket of major currencies, slipped 0.1 percent to 84.087
after a 3 percent slide on Wednesday -- its biggest one-day drop
in at least a quarter of a century.
The euro <EUR=> edged lower against the dollar as investors
booked profits after it jumped 3.8 percent on Wednesday for its
biggest one-day rise since its launch in 1999, according to
Reuters data. The single currency hit a two-month high of
$1.3536 on trading platform EBS early in the global session. It
was last down 0.1 percent at $1.3487.
Sterling reversed earlier losses and rose to a three-week
high at $1.4349 <GBP=>, while against the yen, the dollar was
0.3 percent lower at 95.57 yen <JPY=> after falling almost 3
percent on Wednesday.
FURTHER DOLLAR WEAKNESS?
ING strategists said the euro would be a major beneficiary
of the Fed's 'shock and awe' policy, adding that new dollar
supply and debt monetisation meant a run-up to the $1.40 area
could be on the cards even though the single currency bloc faces
its own problems.
Daily technical charts show the euro now faces resistance at
$1.3635. Above that lies the 200-day moving average near
$1.3900.
But it's not just the euro which is likely to benefit.
"Apart from being negative for the dollar, we expect
yesterday's events to be bullish for commodity currencies such
as the Australian dollar, <AUD=> Norwegian crown <NOK=> and
Canadian dollar <CAD=>, and currencies of countries less likely,
for whatever reasons, to engage in the monetisation of
government debt such as the euro," Barclays Capital strategists
said in a note.
The Fed is not alone in conducting large-scale buying of
government debt. The Bank of England is buying 75 billion
sterling of gilts and the Bank of Japan on Wednesday announced
it would increase its purchases of Japanese government debt.
The Swiss National Bank last week shocked investors by
combining a rate cut with FX and bond market intervention to
keep interest rates low.
The European Central Bank has mulled non-standard policy
measures after cutting interest rates to a record low 1.5
percent in March. But many don't expect to see quantitative
easing implemented soon and it remains unclear how the ECB would
set about such a policy with so many different European
countries issuing bonds.
(Reporting by Kirsten Donovan; Editing by Ruth Pitchford)
