* Dollar index dips to three-month low <.DXY>
* Euro breaks key technical level, up 1 percent
* Solid Chinese data, strong European earnings help risk
* Sluggish U.S. growth weighs on greenback
(Adds comments, details. Changes byline)
By Vivianne Rodrigues
NEW YORK, Aug 2 (Reuters) - The dollar fell to a
three-month low on Monday against a basket of currencies on
fears the U.S. recovery is faltering, while the euro soared
after hitting a key technical level.
Strong European earnings pushed sterling to a six-month
high against the greenback, while the single currency neared
$1.32 for the first time since early May.
The euro rally picked up steam after it broke above
$1.3125, a key technical level. That marked the 38.2 percent
retracement of a decline that began in November and took the
euro to $1.1876 in June, its lowest level since 2006.
A close above that level would be a bullish sign, with
$1.3510, the 50 percent retracement of the November-to-June
move, a potential target, traders said. They added that
barriers around $1.3200, $1.3250 and beyond could make it a
slow and difficult climb.
In late afternoon trading in New York, the euro was up 1
percent at $1.3170 <EUR=>.
"If we close above key technical levels on the euro, we may
be in for a sharp acceleration," said Sebastien Galy, senior
strategist at BNP Paribas in New York. "It's a broad
dollar-weakness story right now."
Signs of weaker U.S. growth have weighed on the dollar in
recent weeks. The government on Friday reported that growth
slowed to a 2.4 percent annual rate in the second quarter, and
Federal Reserve Chairman Ben Bernanke on Monday said the
economy is still far from achieving full recovery.
[]
An index of the dollar <.DXY> against six major currencies
fell 0.7 percent to trade last at 80.92. It was nearing its
200-day moving average, another important technical level that,
if breached, could suggest further losses ahead, analysts
said.
Sterling hit a six-month high versus the dollar <GBP=D4> of
$1.5897 and hit a four-week high against the euro <EURGBP=D4>.
Robust results from HSBC <HSBA.L><0005.HK> and BNP Paribas
<BNPP.PA> helped risk sentiment and boosted European shares
<>.
Some analysts said more than the increase in the
profitability of European banks, some of the results showed
that quarterly provisions to sustain losses had been cut in
half.
"This helped ease concerns regarding the broader European
banking community and has propelled the euro higher," said Dan
Cook, a senior market analyst at IG Markets Inc. in Chicago.
Cook added that despite Monday's rally, the next major area
of resistance may not come into play until $1.3270 and $1.3290.
RISK CURRENCIES RISE
The Australian dollar hit a three-month peak after data
showed Chinese manufacturing expanded for a 17th straight
month. [] It was last up 1 percent at $0.9126
<AUD=D4>.
The Chinese data and recent solid reports from Europe have
investors hopeful the world economy can grow even if the U.S.
recovery sputters, boosting the appetite for higher risk
currencies and pushing them through technical levels.
U.S. stocks gained as equities investors ignored Friday's
data on gross domestic product to focus on strong earnings and
data that showed that growth in the U.S. manufacturing sector
slowed only moderately in July. See []
"What's happening is the rest of the world doesn't look so
bad and the U.S., while sluggish, doesn't look dire yet," said
Joseph Trevisani, chief analyst at FX Solutions in Saddle
River, New Jersey. "As long as China doesn't fall off a cliff,
the easy currency play is to keep buying risk, particularly the
Australian and Canadian dollars."
(Additional reporting by Steven C. Johnson and Nick Olivari in
New York and Neal Armstrong in London; Editing by Leslie
Adler)
