(Recasts, updates prices, adds comment, changes dateline,
previous LONDON).
NEW YORK, May 6 (Reuters) - The dollar extended declines
against the euro and a basket of six major currencies for a
second day on Tuesday after earnings results from Fannie Mae
<FNM.N> came in weaker than expected.
Fannie Mae, the largest provider of U.S. home financing,
reported its third straight quarterly loss as the U.S. housing
crisis took another turn for the worse in the first quarter.
For more details, click [].
Problems at Fannie Mae remind investors that problems in
the U.S. housing market, one reason for the slowdown in the
U.S. economy, may not yet have completely worked their way
through the system and bode ill for the dollar.
"The U.S. dollar is broadly lower on an aggregate basis
versus Monday's North American close as weak earnings news in
the US housing sector once again has the market moving towards
risk averse style trading," Dustin Reid, director, G11 FX
Strategy at ABN Amro in Chicago said in a note to clients.
The euro traded 0.2 percent higher on the day at $1.5530
<EUR=>, while the dollar index <.DXY> fell 0.2 percent to
73.044. The dollar also dropped 0.4 percent to 104.49 yen
<JPY=>.
The dollar was already lower on Tuesday, pressured by
waning risk appetite as European equities fell, while the
single currency drew support from euro zone service sector data
that was slightly stronger than expected.
Concerns over the impact of rising inflationary pressures
amid soaring food and energy prices was also reflected in crude
oil's surge above $120 to a record high <CLc1>.
More bad news from the banking sector weighed on risk
appetite as European shares fell, led by Swiss bank UBS
<UBSN.VX> after it unveiled large job cuts.
Reinsurer Swiss Re <RUKN.VX> announced another round of
credit writedowns and said its first-quarter net profit had
halved, missing analysts' forecasts.
Meanwhile, data released earlier showed a pick up in euro
zone service sector growth, with the RBS/NTC services PMI
coming in at 52.0, slightly above a flash reading of 51.8.
"European equity markets have been a bit disappointing.
We're seeing a little bit of an increase in risk aversion with
the investment community rotating back into the cyclically
defensive currencies -- so we've seen the Swiss franc, the yen
and euro all rallying today," JP Morgan G10 strategist Kamal
Sharma said.
"Also we had the PMI services numbers that give credence to
the view that the euro zone economy is slowing but holding up
pretty well in the face of downside risks to global economic
growth," he added.
The Australian dollar was little changed at $0.9456 <AUD=>,
having retreated from a two-week high after the Reserve Bank of
Australia held its key cash rate at a 12-year high of 7.25
percent and underlined its concern about demand.
Record high oil prices were seen reinforcing the European
Central Bank's focus on inflation, which President Jean-Claude
Trichet on Monday termed a "significant" risk.
This underlined expectations the central bank would keep
rates at 4 percent when it meets on Thursday.
Analysts also broadly expected the ECB to stick with its
hawkish line on inflation in Trichet's post-meeting briefing on
Thursday, despite a recent run of soft data, but some felt a
psychological change in perceptions was already underway.
(Reporting by Nick Olivari, additional reporting by Naomi
Tajitsu and Veronica Brown in London, Editing by Chizu
Nomiyama)
