* Dollar index jumps to one-month high
* Oil price drops sharply, ignites U.S. stocks rally
* U.S. consumer confidence halts 6-month slide in July
(Recasts, updates prices
By Lucia Mutikani
NEW YORK, July 29 (Reuters) - The dollar surged to a
one-month high on Tuesday as a sharp drop in crude oil prices
and an unexpected rise in U.S. consumer confidence in July
buoyed demand for riskier assets and sparked a rally on Wall
Street.
Analysts said Merrill Lynch's <MER.N> announcement late on
Monday of yet another write-down and capital-raising exercise
also helped support the dollar, as they raised hopes the
turning point in the year-long credit crisis was close.
"It's a combination of oil, equities and the slight
improvement in consumer confidence. The (light) summer
liquidity conditions could be a factor as well," said Vassili
Serebriakov of Wells Fargo in New York.
The dollar index, which measures the the dollar's
performance against a basket of six currencies, jumped to
73.333 <.DXY>, its highest since June 25, according to Reuters
data.
It was last around 73.318, up 0.9 percent on the day.
Oil <CLc1> fell more than $4 a barrel to below $121,
touching the lowest price since May, as signs of weakening
demand outweighed a disruption to Nigerian output.
Economists worry that record high oil prices will inflict
more pain on the U.S. economy, already hamstrung by a recession
in the housing sector. A decline in oil prices tends to benefit
the dollar, as it eases some of the growth concerns.
There was more good news on the economy, with an
independent report showing consumer confidence unexpectedly
perked up in July, halting a six-month slide. For details, see
[].
POOR FRENCH CONSUMER MORALE HITS EURO
Declining oil prices and news that French consumer
confidence plunged to a record low for the seventh straight
month in July kept investors away from the euro.
The currency dropped as low as $1.5577 <EUR=>. It was last
trading at 1.5579, down 1.1 percent on the day.
"What we are seeing is a squeeze of short dollar positions.
Just looking at the consumer confidence number, I don't think
that changes the picture for the U.S. consumer," said David
Gilmore, partner at FX Analytics in Essex, Connecticut.
Analysts said Merrill Lynch's announcement of a $5.7
billion third-quarter write-down and $8.5 billion capital
raising by selling new stock also helped support the dollar.
"It's a psychological confidence builder for the market. We
are seeing Merrill credit default swaps come off sharply. It's
having the desired impact on market sentiment," said Brian
Dolan, chief strategist at Forex.com in Bedminster, New
Jersey.
"The fact that they have gone ahead and disposed of
everything of considerable mortgage-related risk raises hopes
of turning the corner. The fact they will also raise capital is
seen as positive. There is a fair amount of silver lining in
that cloud."
The dollar <JPY=> rose 0.7 percent to 108.19 yen as U.S.
stocks rallied on the slide in crude oil prices. The yen was
also hurt by news that Japan's jobless rate rose in June to a
near two-year high and household spending fell again from a
year earlier.
Sterling <GBP=> fell 0.7 percent to $1.9795, weighed down
by a report showing British retail sales fell at a record
annual pace in July, while approvals for new mortgages hit a
record low last month, offering further proof that a
deteriorating housing market is battering the overall economy.
Analysts said the French, Japanese and British data was
evidence that the effects of the economic slump in the United
States were spreading to other regions.
"This is a fairly consistent picture of slowing economic
activity and it does suggest that those calling for the
decoupling from the U.S slowdown have perhaps been too
optimistic," said Wells Fargo's Serebriakov.
(Editing by Dan Grebler)
