* Dollar at 3-1/2-month high; euro, sterling fall
* Second Greece downgrade stokes worry about euro zone
* More upbeat Fed economic view helps dollar
* Some say too early to call end of dollar downtrend
(Updates prices, adds detail on euro daily move, Bernanke
nomination, comment)
By Steven C. Johnson
NEW YORK, Dec 17 (Reuters) - The dollar soared on Thursday,
hitting a 3-1/2-month high against the euro, a day after the
Federal Reserve highlighted improvement in the U.S. economy and
stood by plans to shutter most emergency lending by February.
The euro, which tumbled to near $1.43 for the first time
since September, also struggled after Standard & Poor's became
the second rating agency to downgrade Greece in just over a
week, stoking fears about the public finances of the euro zone
member.
Data showing U.S. jobless claims unexpectedly rose last
week tempered dollar gains, but a regional U.S. factory index
improved, leaving the greenback near a two-month high against
sterling and up more than 1 percent on the Australian dollar.
For more, see []
"The U.S. economy is picking up, and the Fed acknowledged
this by saying it will stop most of its quantitative easing by
Feb. 1, while the Greece issue might create a bad cloud over
the euro zone economy," said Hidetoshi Yanagihara, senior
currency trader at Mizuho Corporate Bank in New York.
The euro fell more than two U.S. cents to $1.4305 <EUR=>,
according to Reuters data, its lowest level since Sept. 7. It
was down 1.6 percent on the day and on track for its biggest
daily decline since early July. It also fell 1 percent to
129.21 yen <EURJPY=>.
Light trading volume ahead of the holidays may have
contributed to the scope of the dollar's gains, traders said,
as did investors squaring up their portfolios before year end.
The dollar rose 0.6 percent to 90.29 yen <JPY=>, its third
straight day of gains against the Japanese currency. Yanagihara
said a recent push higher in U.S. bond yields reflected U.S.
economic improvement while Japan faces deflation risks.
"We've hit some stops and liquidity is a bit thin, so the
move's a bit exaggerated, but there's no question, the U.S. is
likely to come out of its tailspin faster than Western Europe
and Japan," said Mark Frey, director of FX trading at Custom
House in Victoria, British Columbia, a global payments dealer.
But Alan Ruskin, chief international strategist at RBS
Securities, said the dollar could retreat again in coming weeks
if the euro fails to move below its 200-day moving average of
$1.4175. "Only a concerted break of this level would lead to
reevaluation of the dollar's longer-term trend," he said.
Traders said a Senate panel's approval of the nomination of
Fed Chairman Ben Bernanke for a second term had little impact.
GREECE WEIGHS, AUSSIE RETREATS
The Fed gave no indication in Wednesday's statement that it
was set to raise interest rates from near zero, stressing that
they would stay low for an extended period. But it highlighted
improvements in the economy, which markets have seen reflected
in a slower pace of job losses and improved retail sales data.
Greek assets, meanwhile, took a lashing after Standard &
Poor's cut Greece's rating by one notch to BBB-plus from
A-minus late in European hours on Wednesday. []
Sterling hit a two-month low beneath $1.61 and was last
down 1.2 percent at $1.6132 <GBP=>. The dollar also hit a
3-1/2-month peak against a basket of currencies <.DXY>.
The Australian dollar, which has ridden three central bank
interest rate hikes to multi-month highs of late, hit a 10-week
low at $0.8848 <AUD=> and was last off 1.7 percent.
For most of 2009, the dollar has struggled on the view that
the Fed would keep interest rates low longer than other central
banks and that the U.S. economy would lag the global recovery.
(Additional reporting by Gertrude Chavez-Dreyfuss in New
York and Jessica Mortimer in London, Editing by Chizu Nomiyama
and Andrew Hay )
