* Dollar rebounds from 2009 level
* Pound down after S&P cuts UK outlook, cites debt burden
* S&P action dampens risk appetite in markets
(Adds comments, updates prices, changes byline, dateline,
previous LONDON)
By Wanfeng Zhou
NEW YORK, May 21 (Reuters) - The U.S. dollar on Thursday
rose from its lowest level so far this year on diminished
investor risk appetite after Standard & Poor's said it could
downgrade Britain's triple-A credit rating due to high debt.
Sterling dropped from a 6-1/2-month high against the dollar
after the ratings agency revised its outlook on Britain to
negative from stable, saying the country's debt burden would
rise significantly. For more see [].
Analysts said the news reminded markets that the global
economy still faces challenging times despite recent signs that
the worst of the crisis may be past. That sentiment boosted
safe-haven demand for the dollar and weighed on riskier assets
such as equities and commodities.
"The most obvious one was the S&P action on the UK. That
was like a wake-up call for the market overall," said Ronald
Simpson, managing director of global currency analysis at
Action Economics in Tampa, Florida.
"That action dented the risk appetite for now, so we've
seen the dollar move marginally higher as a result," he added.
"The market was getting a little ahead of itself. We still have
some major issues to deal with."
In early New York trading, the ICE Futures dollar index
<.DXY>, which tracks the greenback against a basket of six
currencies, rebounded to trade up 0.2 percent at 81.329 after
it plumbed its lowest level of the year at 80.799 earlier in
the global session.
Recent optimism about a global recovery eroded safe-haven
demand for the dollar, while minutes from the Federal Reserve's
latest policy meeting showing the U.S. central bank had
considered buying more securities added to pressure.
[]
The euro fell 0.2 percent to $1.3741 <EUR=>, after rising
to as high as $1.3837, according to Reuters data, its highest
since early January.
The dollar <JPY=> traded slightly lower at 94.77 yen, but
stayed in range of a two-month low of 94.28 yen hit on
electronic trading platform EBS earlier in the day.
UK RATINGS
The pound tumbled as much as 3 cents against the dollar
following the S&P's news, although it later trimmed losses as
some in the market reckoned that Britain is only one of many
nations facing deep fiscal problems.
Sterling <GBP=D4> traded at $1.5641, down 0.6 percent on
the day, but pulled back from the day's trough of $1.5514 hit
after the S&P announcement.
"The follow-through reaction is that the market has started
to realize that if this is happening to the UK, who could be
next?" said Paul Mackel, director of currency strategy at HSBC
in London.
"If they're adjusting the UK's outlook because of fiscal
concerns, certainly there are other candidates that would have
to go down the same path."
Rival agency Moody's said its stable outlook for its UK Aaa
rating is not under review, while Fitch said it had not changed
its stable outlook and triple-A rating for Britain.
Analysts at ING in London said the United States may also
be vulnerable, given that its debt-to-GDP ratio was worse than
the UK's heading into the global financial crisis, and is
expected to hit 100 percent before Britain's does.
"The market is right to ask whether a U.S. ratings outlook
change could occur shortly -- which would be very bad news for
the USD," they wrote in a research note.
(Additional reporting by Naomi Tajitsu in London; Editing by
James Dalgleish)
