* Dollar supported by risk aversion, Obama victory
* Weak euro zone, UK data boost view for big rate cuts
* EZ Oct services PMI slumps; dovish ECB Stark comments
(Recasts, updates prices, adds comment, changes byline,
dateline, previous LONDON)
By Nick Olivari
NEW YORK, Nov 5 (Reuters) - The dollar rose against a
basket of currencies on Wednesday as fears of recession around
the world kept risk appetite low, while a decisive win by
Barack Obama to become the next U.S. president also bolstered
the currency.
The dollar was already higher on the announcement that
Democrat senator Obama had won the presidency and analysts said
that a big slump in the euro zone services sector and weak UK
output data also helped to prop up the U.S. currency. For more
on Obama see [].
Analysts said demand for high-risk positions, including
assets in euros, sterling and other high-yielding currencies,
would remain low as evidence of a global recession continues to
mount. Higher risk aversion prompts investors to buy the dollar
in a flight to safety.
Adding to negative sentiment around the euro, European
Central Bank executive board member Juergen Stark told the
Financial Times Deutschland that weak euro zone growth and oil
price fluctuations could push inflation briefly into negative
territory. [].
"Disappointing data has pushed down the euro while comments
from the ECB's Stark add to the bearishness around the euro,"
said Michael Woolfolk, senior currency strategist at Bank of
New York-Mellon.
In early New York trade, the ICE Futures US dollar index
<.DXY> was up 0.4 percent at 84.927, after falling more than 2
percent on Tuesday.
The euro fell roughly 1.1 percent <EUR=> to $1.2891.
Earlier, the euro zone common currency had climbed as high as
$1.3031 according to Reuters charts, after stop-loss orders in
the dollar were triggered in the lower $1.2900 region.
A marked fall in Libor rates for dollar funds across the
curve had eroded some of the dollar's early gains, as lower
rates suggested pressure on banks to scramble for the U.S.
currency may be easing.
ECB, BOE TO CUT RATES
A slump in euro zone PMI to a fresh decade low, along with
sluggish figures from across the region showed that the service
sector remains weak, added to the view in the market that the
ECB will cut benchmark interest rates by half a percentage
point on Thursday.
A rate cut of half a point or more by the BoE is also
anticipated on Thursday after news of shrinkage in the UK
services sector and a surprisingly big fall in manufacturing
bolstered the argument that the economy is in recession.
Such moves would come after the ECB and the BoE slashed
interest rates by 50 basis points last month to 3.75 percent
and 4.5 percent, respectively, in a coordinated move.
There are 100 basis points in a percentage point.
Analysts said that the ECB will do what is necessary to get
back ahead of the rate curve, having long maintained its
traditional distinction between prices and the real economy.
ING analysts pointed out that ECB board member Axel Weber
-- often considered a policy hawk -- has "given his blessings"
for big rate cuts, while adding that the bank would likely opt
for bolder policy changes than the 25 basis-point moves seen
during its most recent monetary policy tightening cycle.
"The market is likely to reward the ECB and BOE, as it did
the RBA (Reserve Bank of Australia) earlier this week, if the
central banks take aggressive steps to address the
deterioration in their economies," said Brown Brothers Harriman
in a research note to clients.
(Additional reporting by Naomi Tajitsu in London; Editing by
James Dalgleish)
