* Dollar index pushes higher <.DXY>
* ECB comments keep euro below $1.40 <EUR=>
* Sterling scales $1.60 for first time since Nov <GBP=>
* Eyes on stocks, Treasury auction, US data
(Adds quotes, updates prices)
By Kirsten Donovan
LONDON, May 27 (Reuters) - The dollar rose against the euro
on Wednesday after a European Central Bank policymaker said
further interest rate cuts couldn't be ruled out, but it fell
against a buoyant British pound, which reached $1.60.
Sterling was the biggest mover amongst the majors, propelled
higher by receding pessimism about the UK economy and financial
sector, and helped by a general move into riskier assets as
equity markets rose after a pick-up in U.S. consumer confidence.
The pound outperformed the euro, hitting $1.60 for the first
time in almost seven months as investors continued to pare back
the large bets against the currency built up after the collapse
of Lehman Brothers last year.
"Sterling continues to do well, it's partly that it was
oversold in the early part of the year and now we're getting a
correction and also that it's seen as a beneficiary of the risk
appetite," said Rabobank strategist Jeremy Stretch.
ECB Governing Council member Erkki Liikanen was quoted as
saying on Wednesday that the bank's current key interest rate of
1 percent isn't necessarily the lowest it can go. []
That prompted some profit taking after the euro tested $1.40
again overnight, while surprisingly strong demand at Tuesday's
auction of two-year U.S. Treasury notes allayed fears over
investor appetite for U.S. assets, supporting the dollar.
"It's primarily a euro/dollar story and the fact that we
poked up above $1.40 again has prompted some profit taking,"
said Adam Cole, global head of FX strategy at RBC Capital
Markets.
"Overall it's a mixed performance for the dollar and that
reflects the fact that we're not seeing much of a lead from the
stock market, so we'll wait and see where the U.S. opens."
At 1120 GMT the euro, which has risen about 10 percent in
three months to hit a four-month peak above $1.4050 last week,
was back below $1.40, trading at $1.3910 <EUR=>, down 0.5
percent on the day.
The dollar extended early gains to stand 0.4 percent higher
against a basket of six major currencies <.DXY> at 80.41,
although it was still within sight of a five-month low set on
Friday just below 80.00.
Niels Christensen, FX strategist at Nordea in Copenhagen,
said traders may be concerned over U.S. sovereign ratings but at
the same time "aren't too enthusiastic" about the euro zone from
a data or banking sector standpoint.
In this context, Liikanen's comments echoing what some other
ECB Governing Council members have said recently about the
possibility of further rate cuts "are obviously not supportive
for the euro", he said.
BUYING RISK
Sterling was up 0.4 percent at $1.5993 <GBP=>, having traded
as high as $1.6040 and also gained almost 1 percent against the
euro.
"The current across-the-board sterling gain has further
momentum ahead," said Neil Jones, head of FX hedge fund sales at
Mizuho in London.
"The 'win treble' for the UK economy of low interest rates,
undervalued currency and oversold assets is proving attractive
to overseas (investors). The global investor store of idle cash
reserves will continue to gravitate towards sterling and away
from the dollar and yen," Jones said.
The euro was last down 0.8 percent at 87.09 pence <EURGBP=>,
close to testing key technical support at the 200-day moving
average of 86.78 pence.
The dollar was up 0.3 percent against the yen at 95.32 yen
<JPY=> with the euro down 0.1 percent at 132.74 yen <EURJPY=R>.
The broadly stronger pound touched its highest level since
November at 152.85 yen <GBPJPY=R>, according to Reuters data.
The U.S. Treasury sold $40 billion of debt on Tuesday and
sells another $61 billion this week, kicking-off with a $35
billion sale of five-year paper later on Wednesday.
Traders said the market is still closely watching economic
indicators such as U.S. housing data. Figures for existing home
sales in April will be released on Wednesday, and new home sales
data for the same month come out on Thursday.
(Additional reporting by Jamie McGeever)
