* ECB cuts rates, announces asset purchases; euro gains
* Rising risk appetite hits yen, lifts high-yielders
* Focus turns to forthcoming U.S. bank stress tests
(Updates prices, adds comment)
By Steven C. Johnson
NEW YORK, May 7 (Reuters) - The euro jumped to a one-month
high against the dollar on Thursday as growing optimism about
the world economy and modest European Central Bank plans to buy
assets boosted investor risk appetite.
Sterling fell after the Bank of England kept interest rates
steady but increased the size of its asset purchase program.
The euro, too, initially fell after ECB President
Jean-Claude Trichet announced plans to buy covered bonds, used
largely to finance mortgages in Europe. The ECB also cut
interest rates to 1 percent, a record low.
It quickly recovered, however, rising above $1.34 to its
highest since early April, as some investors grew increasingly
optimistic that special policies by central banks have helped
steer the world economy through the worst of the recession.
"The ECB looks much better today than they have for several
years," said Benedikt Germanier, senior currency strategist at
UBS in Stamford, Connecticut. "This shows the market they are
acting, and it will be helpful. It's positive news."
Hope that the financial crisis is easing, despite expected
confirmation later Thursday that many U.S. banks need billions
of dollars of fresh capital, also helped support the euro and
other currencies against the dollar and yen.
The euro rose 0.7 percent to $1.3410 <EUR=>, not far from a
$1.3470 session peak, its highest since April 6 and its
approximate 200-day moving average, according to Reuters data.
The euro was up 1.4 percent at 132.76 yen <EURJPY=> while
the dollar rose 0.6 percent to 99.01 yen <JPY=>.
"The euro got punished in the past for a perceived lack of
action by the ECB," said Win Thin, senior currency strategist
at Brown Brothers Harriman in New York. "But now there have
been a number of good indicators out there, with global stocks
rallying, and that is adding to pressure on the dollar."
Sterling fell 0.7 percent to $1.5019 <GBP=> but the
Australian dollar hit seven-month peaks against the yen
<AUDJPY=D4> and dollar <AUD=> after data showed surprise gains
in Australian employment, casting doubt on the need for further
rate cuts. For more see [].
The dollar and yen typically rally when investors are
anxious, as both are considered relative safe havens, but fall
when risk appetite recovers.
STRESS TEST RESULTS
Dealers also awaited the official results of the 19 U.S.
banks stress tests at 5 p.m. EDT (2100 GMT). U.S. Treasury
Secretary Timothy Geithner said Wednesday none of the 19 banks
being examined are at risk of insolvency, although reports
suggest many, including some of the biggest, need more capital.
[] []
Analysts said they did not expect massive currency reaction
because leaks this week mean few expect surprises.
RBC Capital Markets strategist David Watt said the ECB's
asset purchase plans were modest compared to those employed by
the U.S. Federal Reserve, thus adding support to the euro.
Markets sold the dollar aggressively in March when the Fed
-- the U.S. central bank -- announced plans to push long-term
interest rates down through purchases of U.S. government debt.
Watt said the economic backdrop also helped. "If the ECB
had done this six weeks ago, the euro would have got smoked.
You can't discount that the macroeconomic backdrop has improved
dramatically and investors are taking on more risk."
(Additional reporting by Gertrude Chavez-Dreyfuss and Vivianne
Rodrigues in New York and Jamie McGeever in London; Editing by
James Dalgleish)
