* Dollar index on track for biggest monthly fall since '85
* US economy contracted slightly less than thought
* Euro strikes a 2009 high against dollar
(Adds details, updates prices)
By Vivianne Rodrigues
NEW YORK, May 29 (Reuters) - The U.S. dollar fell to
five-month lows against a basket of currencies on Friday as an
advance in global equities and signs of an easing global
recession drove investors to snap up higher-yielding currencies
and riskier assets.
Global stocks rose and some equities markets posted 2009
highs, diminishing the safe-haven allure of dollar assets and
sending the euro <EUR=> to a 2009 high against the dollar.
A government report showed the U.S. economy contracted in
the first quarter slightly less than initially estimated, but
the market had expected evidence of a shallower recession. For
details, see [].
"The dollar is being slapped around," said Boris
Schlossberg, director of foreign exchange research at GFT in
New York.
Analysts such as Schlossberg noted that as global risk
appetite increases, the dollar may start reacting negatively
to lackluster domestic economic reports.
"The market is now getting realistic about this (U.S.)
recovery," he said.
Other reports showed business activity in the U.S. Midwest
contracted in May at a sharper rate than expected, while a
measure of consumer confidence improved in May. []
and []
"There will be a recovery, but it will be tepid,"
Schlossberg added.
In midday trading in New York, the dollar index <.DXY>, a
gauge of the U.S. currency's performance against six major
currencies, was 1.4 percent lower at 79.400, having earlier hit
79.287, its lowest since mid-December.
It is now down more than 6 percent for the month, on track
for its biggest monthly fall since 1985.
The euro was also heading for its largest monthly gain
since December and struck its highest level this year against
the dollar at $1.4166 <EUR=>, according to Reuters data. It was
last up 1.4 percent at $1.4121.
The Australian dollar is up more than 10 percent in May, on
pace for a record monthly gain. It last traded up 1.6 percent
at US$0.7980.
Month-end fixings by corporations and pension funds also
pushed the dollar lower, traders said.
"We've hit some pretty significant technical levels
recently in many currency pairs, which are all adding a bit of
selling pressure on the dollar," said Jessica Hoversen, fixed
income and currency analyst at MF Global Ltd. in Chicago.
HIGHER YIELDS
The dollar tumbled last week on concerns U.S. government
debt may lose its top triple-A rating as a result of the rising
debt levels needed to fix the economy and rehabilitate the
financial sector.
Those worries, though still at the back of investors'
minds, receded somewhat after Moody's Investors Service
affirmed the country's credit rating and the U.S. Treasury was
able to sell over $100 billion of government debt.
Now, adding further pressure on the dollar, South Korea's
National Pension Service said on Friday it would reduce
exposure to U.S. government bonds and equities in its five-year
portfolio.
U.S. government bonds account for 83 percent of the pension
fund's direct holdings of foreign bonds, which are currently
worth $6.5 billion.
"Money is flowing out of the dollar," said Hoversen at MF
Global. "There was a lot of institutional money sitting on the
sidelines during the worst of the crisis that now is looking
for (higher) yields."
The dollar fell 1.4 percent to 95.55 yen <JPY=>, due partly
to selling by Japanese exporters but was well above a two-month
trough of 93.85 yen marked last week.
The yen was sold against most currencies apart from the
dollar, as investors favored the high-yielders.
(Additional reporting by Gertrude Chavez-Dreyfuss in New York;
Editing by Kenneth Barry)
