* Dollar under pressure as equity markets rise
* Better European data spurs appetite for risk
* Dollar hovers above 7-mth low vs yen <JPY=>
By Neal Armstrong
LONDON, July 22 (Reuters) - The U.S. dollar fell broadly on
Thursday as better-than-forecast European economic data boosted
equities and spurred appetite for risk, with a drop in U.S.
lending rates putting additional pressure on the currency.
The dollar had earlier fallen to a seven-month low against
the yen on downbeat comments from Federal Reserve Chairman Ben
Bernanke the previous day, who said the U.S. economic outlook
was "unusually uncertain". []
The subsequent release of strong European purchasing
managers surveys, together with robust UK retail sales revived
risk sentiment, putting the dollar under selling pressure.
[] []
"The PMIs out of Europe have been very good and equity
markets are rallying. I think this is a risk-driven move," said
Paul Robson, currency analyst at RBS.
At 1130 GMT, the dollar was trading down around 0.8 percent
versus a currency basket <.DXY> at 82.719 after slipping to a low
82.624.
Analysts said a fall in dollar lending rates was adding
pressure to the currency, as three-month dollar Libor fell below
0.5 percent for the first time in two-months. []
The dollar fell to a 2-month low versus the high-yielding
Australian dollar <AUD=D4> with traders saying an option barrier
had been targeted at $0.8880 en-route to the $0.8899 high.
Further barriers were reported at $0.8900.
The euro <EUR=> rose over 1 percent from New York closing
levels to reach a session high of $1.2877 having fallen to
$1.2739 in early dealing. European stocks traded with gains of
around 1.4 percent <>.
Attention focused on the release of European bank stress
test results, due at 1600 GMT on Friday although some sources
said they may be released earlier. []
The euro has had a good run against the dollar in
anticipation of the test results, rising to a 10-week high above
$1.30 on Tuesday as, traders bet most of the 91 European banks
being examined would pass. []
Some in the foreign exchange market say the test results
could be positive for the euro if they reveal no unpleasant
surprises, but doubts linger over whether the checks are tough
or transparent enough.
"The market has certainly bought the rumour going into this
week that the stress tests will be positive and people have been
going long euro/dollar, with weak U.S. economic data making it
look like a no-lose situation," said Lauren Rosborough, currency
strategist at Westpac.
She said the euro was likely to see a short-lived rally
after the results, which could turn to selling next week as
market participants concluded after the tests that the problems
facing euro zone peripheral countries have not gone away.
DOLLAR/YEN
The dollar was down 0.4 percent at 86.78 yen <JPY=> after
slipping to 86.35, extending losses in the wake of a 0.5 percent
fall on Wednesday.
Traders said stop-losses were placed below the November low
of 86.27, though strong bids were then said to be layered into
86.00.
The rise in the yen, which gained steeply on the crosses on
Wednesday, has been hampered by caution that Japanese
policymakers may try to talk it down as it nears a 14-year high
around 85 yen per dollar hit last November.
Deputy Finance Minister Motohisa Ikeda said on Thursday
Japan wants to avoid excessive rises in the yen, but market
reaction was muted. []
(Additional reporting by Jessica Mortimer, editing by Chris
Pizzey)
