* Dollar index at 1-year low, euro at 2009 high
* China data boost economic recovery hopes; shares rise
* Dlr diversification, long-term status under spotlight
* Dollar/yen at 7-month low
(Updates prices; changes byline)
By Jessica Mortimer
LONDON, Sept 11 (Reuters) - The dollar fell to a one-year
low against a basket of currencies on Friday as strong Chinese
data buoyed belief the global economy is recovering, tempting
investors towards perceived higher risk currencies.
Gains in equities also encouraged risk-taking, further
denting the U.S. dollar and lifting currencies such as the euro,
sterling and the Australian dollar as European shares <>
headed for a sixth consecutive day of gains.
The dollar was well on track for its steepest weekly decline
in almost four months against a basket of currencies and the
euro, which hit a 2009 high of $1.4627.
"Over the course of the past few days it has been a theme of
broad-based dollar weakness, largely because risk sentiment has
held up well, so we're seeing a lot of the pro-cyclicals doing
well like euro and sterling," said Societe Generale currency
strategist Phyllis Papadavid.
"That's likely to continue to be the case in the near term,
although sooner or later there will need to be some stock-take
of the macro economic data and the fact that the recovery is
still quite mild," she added.
At 1152 GMT the dollar index, a gauge of the greenback's
performance against six other major currencies, was down 0.3
percent on the day at 76.60 <.DXY>, having earlier traded down
at 76.511, its lowest since September 2008.
The euro was up 0.2 percent on the day at $1.4603 <EUR=>,
and up 2 percent on the week.
Solid data out of China added to the view the global economy
is firmly on the road to recovery [], while
questions about the dollar's long-term value added to the
negative sentiment towards the currency.
A U.S. Treasury official on Friday said it makes sense for
China to diversify its huge stockpile of foreign exchange
reserves, which analysts said fed the bearish dollar sentiment
that has firmly taken hold this week. [].
The dollar was down 1 percent on the day against the yen at
90.86 yen <JPY=>, having hit a seven-month low earlier of 90.69
yen, according to Reuters data, while the yen also gained versus
the euro, which fell 0.8 percent to 132.68 yen <EURJPY=>.
Some analysts said yen strength may reflect the repatriation
of profits by Japanese exporters ahead of the end of the first
half of the Japanese fiscal year.
Others noted, however, the focus in times of strong risk
appetite may now be firmly on selling the dollar, rather than on
selling of currencies such as the yen and the Swiss franc which
were previously seen as the funding units of choice.
Among currencies seen as higher risk. sterling rose 0.4
percent to $1.6708, just below a one-month high of $1.6742
<GBP=D4>, while the Australian dollar gained 0.1 percent to
$0.8642 <AUD=>.
RESERVES IN FOCUS
The diversification issue does not appear to have affected
demand for U.S. government debt. Three auctions this week worth
$70 billion went well and alleviated some fears the appetite for
U.S. government debt may be dwindling in the face of the massive
doses of supply. []
Concerns about central bank reserve diversification remain,
however.
Russian central bank first deputy chairman Alexei Ulyukayev
told Reuters on Friday the central bank would like to diversify
its basket of forex reserve currencies by adding two or three
more. []
"There's discussion about diversification, Fed credibility,
and the re-emergence of the U.S. current account deficit," said
Michael Klawitter, senior strategist at Commerzbank in
Frankfurt.
He added the market wants to see at least a test of the
December 2008 high in the euro at $1.4720.
(Reporting by Jessica Mortimer; editing by Chris Pizzey)
