* Euro on track for best day vs dollar in its history
* Markets eye more global rate cuts, U.S. election outcome
* Australian dollar bounces back after big RBA rate cut
(Recasts; updates prices, adds comment, changes byline)
By Steven C. Johnson
NEW YORK, Nov 4 (Reuters) - The U.S. dollar tumbled on
Tuesday, posting its biggest one-day slide against the euro
since that currency's 1999 launch, as investors bet that global
interest rate cuts and a credit market thaw would revive world
growth.
Volume was light with Americans heading to the polls to
elect a successor to George W. Bush and traders said election
day helped exaggerate some of the day's currency moves.
Even so, the mood was upbeat with investors hoping looser
lending conditions and lower interest rates around the world
would stimulate growth and ease the financial crisis.
Australia earlier surprised markets with a 75-basis-point
interest rate cut on Tuesday, while the European Central Bank
and Bank of England were expected to reduce rates on Thursday.
That dulled demand for the U.S. dollar, which gained when
investors were feverishly unwinding risky overseas trades and
rerouting money to safer U.S. assets. On Tuesday, the dollar
fell 2.5 percent against a basket of major currencies, on track
for its worst day in 13 years <.DXY>.
"There's some risk being reintroduced to balance sheets and
an unwinding of the need for safety," said Greg Salvaggio, vice
president of trading at Tempus Consulting in Washington. "The
rise in commodities and equities shows capital is beginning to
shift back into those assets ... and central banks are on
board, vigilant and are going to be aggressive if they need to
be."
In late afternoon trading, the euro was up 2.8 percent at
$1.2992 <EUR=>, off a session peak of $1.3028, but still set
for its best one-day rise since its inception nine years ago.
Sterling rose 0.8 percent to $1.5964 <GBP=> and the
Australian dollar added 3 percent to US$0.6985 <AUD=>. Analysts
said the euro was benefiting from the Aussie's comeback, with
the prospect of further large interest rate cuts from the ECB
and BoE seen as stimulative to their respective economies.
"The current grim economic conditions could justify a cut
of any magnitude," Calyon analysts wrote in a research note on
prospects for UK monetary easing.
In another sign of renewed risk appetite, the dollar rose
0.6 percent to 99.740 yen <JPY=>, while the euro gained 3.4
percent to 129.69 yen <EURJPY=>. The low-yielding yen is also
seen as a safe haven and tends to fall as investors grow bolder
and seek higher returns elsewhere.
DOLLAR MAY EDGE UP AFTER ELECTION
A victory by Democrat Barack Obama was seen as marginally
dollar positive given he could have an easier time passing his
agenda through a Democratic Congress, though some said even a
surprise win by Republican John McCain would be seen as a new
start and could provide a dollar bounce.
Salvaggio said an Obama administration would likely support
a vocal "strong dollar policy" similar to that seen in the
Clinton years, particularly since Treasury will lean heavily on
foreign borrowing to finance efforts to revive the economy.
Trends in the race could become clearer soon after the
first polls begin to close on Tuesday at 6 p.m. EST (2300 GMT)
in Indiana and Kentucky. Voting ends over the next six hours in
the other 48 U.S. states.
Obama expanded his lead to 11 points over McCain in a
Reuters/C-SPAN/Zogby tracing poll, up from 7 points on Sunday.
The poll has a margin of error of 2.9 percentage points.
But with Democrats expected to increase their majority in
Congress, some warned that markets may balk at one party
wielding so much power.
"A landside Obama victory may raise the fear that Obama may
shift more to the left, prompting a dollar-negative reaction in
the short term," said Derek Halpenny, European head of global
currency research for Bank of Tokyo-Mitsubishi-UFJ in London.
(Additional reporting by Nick Olivari; editing by Gary
Crosse)
