* Dollar falls against the euro, gains against the yen
* Hope of bailout for U.S. carmakers boosts sentiment
* Risk aversion likely to remain for some time
* For up-to-the-minute market news, click on <FXNEWS>
(Updates prices, adds quotes, changes byline, changes
dateline, previous LONDON)
By Nick Olivari
NEW YORK, Dec 8 (Reuters) - The dollar fell against the
euro on Monday as talk of an imminent bailout deal for the
three U.S. automakers boosted stocks in Europe and Asia and
helped to quell extreme levels of risk aversion.
The rise of 5 percent in benchmark indexes outside the U.S.
sent the low-yielding Japanese yen and U.S. dollar lower
against the Australian dollar, sterling and other currencies
perceived in the market to have higher risk.
Analysts said expectations that a rescue of the "Big Three"
U.S. automakers will materialize, along with more stimulus
measures from governments around the world was helping to calm
a recent sell-off in risky assets which has send yields on
three-month Treasury bills to near zero.
The "U.S. dollar is sharply lower against the major
currencies as markets anticipate a large fiscal stimulus
package in the U.S. and a U.S. auto bailout as early as today
or tomorrow," said Marc Chandler, global head of currency
strategy at Brown Brothers Harriman in New York in a research
note to clients.
In early New York trade, the euro <EUR=> traded 1.1 percent
higher at $1.2877, after jumping as high as $1.2915, its
highest level since November 28.
The single currency <EURJPY=> rose 1.6 percent to 120.20
yen, having climbed as high as 120.99 yen, according to Reuters
data, as the euro was boosted by higher regional shares.
Stock market gains are seen as a sign of easing risk
aversion and can curb demand for the yen, which rises when
risk-taking declines and carry trades are unwound.
"Higher stocks are driving everything at the moment and
currencies are trading in line with this, with higher yielders
gaining and lower yielders on the defensive," said Adam Cole,
global head of FX Strategy at RBC Capital Markets.
The equities rally also benefited the pound, which gained
0.8 percent against the dollar to $1.4870, while the
higher-yielding Australian dollar <AUD=> jumped 2.5 percent to
$0.6637.
The Australian dollar, whose 4.25 percent yield for the
moment continues to dwarf the yen's 0.3 percent even as the
Reserve Bank of Australia continues to slash interest rates,
rose nearly 3 percent to 61.90 yen <AUDJPY=R>.
Against the yen, the dollar <JPY=> traded 0.5 percent
higher at 93.32 yen, but off the session high of 93.91 yen.
BAILOUT EYED
White House and Congressional negotiators sought on Sunday
to settle remaining differences over an emergency rescue for
the struggling auto industry [].
Hopes for a bailout gained traction after Friday's
disappointing employment figures encouraged U.S. lawmakers to
take action to shield the economy from the credit crunch and a
global recession.
U.S. President-elect Barack Obama also said on Saturday
that his plan to create at least 2.5 million new jobs included
the largest infrastructure investment since the 1950s and a
huge effort to reduce the U.S. government energy use.
"President-elect Obama's plans to introduce the largest
infrastructure package since the 1950's and progress on an auto
sector rescue package have captured the market's imagination
and is weighing on the dollar," said Brown Brothers Harriman's
Chandler.
Despite the dollar's drop on Monday, analysts do not expect
the U.S. currency to continue losing ground, as major concerns
remain about the possibility of a deep global recession, which
many say will keep investors extremely wary of taking on risky
positions.
"We remain wary about the impact of escalating bad news on
the economic front, which we believe will keep risk aversion
elevated for some months to come," analysts at Calyon said in a
research note.
(Additional reporting by Naomi Tajitsu in London)
(Editing by Andrea Ricci)
