* Euro falls sharply, hurt by ECB deposit rate cut
* Dollar up vs yen on White House auto aid plan
* Dollar draws support from BoJ rate cut to 0.1 percent
(Adds comments, updates prices, changes byline, dateline;
previous LONDON)
By Wanfeng Zhou
NEW YORK, Dec 19 (Reuters) - The U.S. dollar rallied
against the euro on Friday, extending gains stemming from
Thursday's European Central Bank's deposit rates cut, which
eroded the appeal of the euro zone currency.
The dollar also gained versus the yen after the White House
said it will provide loans to struggling U.S. automakers. The
greenback earlier drew support from the Japanese central bank
cutting interest rates to nearly zero.
The euro fell below $1.40 as traders also reckoned that its
broad surge earlier this week may have been overdone. Despite
the ECB move, the euro is on track post a weekly gain of over 4
percent against the dollar.
"The driver was the ECB's move to cut its deposit rate
yesterday...to discourage banks from depositing money with the
ECB and to encourage them to rather lend them," said Ronald
Simpson, managing director of global currency analysis at
Action Economics, in Tampa, Florida.
"What this ECB move did was, for all intents and purposes,
it knocked down the euro's interest rate advantage versus the
U.S. So it made it less attractive to hold euros."
In early trading in New York, the euro <EUR=> was down 2.3
percent at $1.3951 after hitting a low of $1.3909, according to
Reuters data, retreating from $1.4720 touched on electronic
trading platform EBS on Thursday, its strongest since late
September.
"Given the fact that the strength in the unit was driven
strictly by yield considerations, yesterday's ECB move may have
broken the will of euro longs," said Boris Schlossberg,
director of currency research at GFT Forex in New York, in a
research note.
"Some analysts have calculated that the sudden rise in the
euro this week was equivalent to a 175 basis points worth of
tightening, prompting euro zone fiscal officials to raise
concern over the volatility in the pair," he said. "Today's
descent should ease some of those worries."
AUTO HOPE
The dollar also drew support from news that the U.S.
government will offer up to $17.4 billion in loans to the
ailing U.S. automakers and expects General Motors <GM.N> and
Chrysler LLC to access the money immediately, a senior
administration official said on Friday.
Some $13.4 billion will be made available in December and
January from the $700 billion fund that was originally designed
to rescue struggling financial institutions, the official said.
See [].
The dollar rose as high as 89.70 yen after the announcement
and last traded up 0.1 percent at 89.48 yen <JPY=>.
The euro fell 2.1 percent to 125.06 yen <EURJPY=>.
"The White House announcement should be a positive for
stocks and risk appetite as it removes another major negative
from the immediate outlook," said a Forex.com analyst at
Forex.com in Bedminster, New Jersey.
The Bank of Japan on Friday cut interest rates to 0.1
percent, providing some boost to the dollar as the monetary
easing took the policy target rates of Japan and the U.S. to
more or less equal footing.
The yen had surged in recent sessions climbing to its
strongest level in more than 13 years, as concerns about the
global economy prompted more investors to dump risky positions
funded by cheap borrowing in the Japanese currency.
In a sign that the global credit crunch may be easing,
central banks around the world announced their latest effort to
pump cash into the financial system on Friday but noted overall
demand for U.S. dollars has declined. See [].
(Additional reporting by Gertrude Chavez-Dreyfuss in New York
and Tamawa Desai in London; Editing by Walker Simon)
