* Dollar rises vs euro after ECB rate cut
* ECB cuts rates by 50 bps to 2.0 percent, as expected
* Risk aversion rises amid renewed concerns on U.S. banks
(Recasts, updates prices, adds comment, changes byline,
changes dateline, previous LONDON)
By Wanfeng Zhou
NEW YORK, Jan 15 (Reuters) - The dollar rose against the
euro on Thursday after the European Central Bank cut its
interest rates as expected, with the greenback also getting
safe-haven bids on renewed concerns about the health of U.S.
banks.
Investors bet the ECB will reduce rates further following
Thursday's half a percentage point move, despite mixed signals
from ECB president Jean-Claude Trichet over the timing of the
next cut.
News of a push by Bank of America <BAC.N> for more
government aid added to worries about mounting credit losses in
the financial sector, depressing investor appetite for risk and
helping push the dollar higher.
"As problems in the U.S. financial markets elevate we are
seeing again risk aversion-mode in currency trading. And in
that mode, the dollar benefits," said Jessica Hoversen, a fixed
income and currency analyst at MF Global Ltd. in Chicago.
"On top of that, there's no doubt the ECB is behind the
curve, which does not help the euro."
The euro rallied briefly after Trichet said at a press
conference following the rate cut decision that the next
important meeting is in March, stoking speculation the ECB
would pause in February. For more, see [].
In mid-morning trading in New York, the euro fell to a
five-week low of $1.3048 <EUR=>, according to Reuters data. It
last traded down 0.8 percent at $1.3058.
The euro also dropped to a six-week low versus the yen,
which also benefited from rising risk aversion, and traded as
low as 116.23 yen <EURJPY=>. It last traded around 117.10.
The dollar rose 0.2 percent against the yen to 89.22.
The ECB, which has been seen by many investors as slow to
lower borrowing costs, took benchmark interest rates to 2.0
percent from 2.5 percent, matching its lowest-ever rate as
inflation slows and recession spreads. ]ID:nLF501185]
[].
Greg Salvaggio, vice president of trading at Tempus
Consulting in Washington, said the euro bounced around because
Trichet's talk of both inflation and growth risks was sending
mixed signals to investors.
Inflation fears in particular seem misplaced, he said, when
economic data is deteriorating and several euro-zone countries
have either seen their credit ratings cut or are at risk for
future cuts.
"Markets are wondering what Trichet is saying? Is he living
in a bubble? I think it tarnishes his credibility a bit. The
British and the U.S. have thrown the kitchen sink at the
problem, but it seems he's not willing to do what's
necessary."
He said the ECB's "inflexible stance" will keep the euro
under pressure over the medium term.
(Reporting by Steven C. Johnson and Vivianne Rodrigues;
Editing by Tom Hals)
