* Dollar hits 3-week high vs euro
* Obama stimulus package providing dollar support
* Easing risk aversion, rising stocks boost dollar vs yen
* Slowing inflation seen denting euro ahead of ECB meeting
(Adds comment, recasts, updates prices, changes byline,
dateline; previous LONDON)
By Gertrude Chavez-Dreyfuss
NEW YORK, Jan 5 (Reuters) - The dollar rose on Monday,
boosted by increased expectations of interest rate cuts by
major central banks and news of a planned U.S. stimulus package
aimed at addressing the global financial crisis.
U.S. President-elect Barack Obama, seeking as much as $310
billion in tax cuts, is proposing that about 40 percent of the
package worth up to $775 billion be in the form of tax breaks.
For more see [].
"There are a couple of things helping the dollar and one of
them is the Obama stimulus package," said David Watt, senior
currency strategist at RBC Capital Markets in Toronto. "The
package is nothing new, but at least we are getting details
about the plan. That is providing short-term support for the
dollar because it caps the economic risk for the U.S."
The euro, meanwhile, hit three-week lows versus the dollar,
with weaker-than-expected Italian and Spanish inflation data
and tax cuts in Germany seen raising pressure on the European
Central Bank to cut interest rates further soon.
Sharp losses for the euro, which has shed more than 3 cents
in the European session so far, also spread to euro/sterling,
taking it well away from record lows for the pound last week
and easing momentum towards parity.
"The euro has suffered from comments by an ECB official
over the weekend," said Omer Esiner, a senior market analyst at
Ruesch International in Washington.
ECB Vice President Lucas Papademos said on Sunday more rate
cuts may be needed to shield the euro zone economy from
recession. [].
"His comments have dented some of the euro's appeal by
suggesting that lending rates could fall aggressively in the
coming months, which is a bit of an about-face from recent
remarks by other ECB officials, which had basically suggested a
resistance to cut rates as aggressively as the U.S.," Esiner
said.
YEN AND RISK APPETITE
In early New York trading, the euro <EUR=> was down 2.1
percent on the day to $1.3584, having earlier hit $1.3556 --
its lowest since mid-December, according to Reuters data.
The euro also fell heavily to 93.56 pence <EURGBP=> against
the pound -- pulling the battered UK currency back from recent
record lows near the brink of parity with the euro. It earlier
hit 93.36 pence, the lowest since Dec. 22.
Figures on Monday showed Italian EU-harmonized consumer
price growth slowed in December to 2.3 percent year-on-year
from 2.7 percent in November, while similar Spanish data
showed inflation tumbled to a 10-year low of 1.5 percent.
These numbers add pressure on the ECB to cut rates further
when it meets meets next week to decide on monetary policy in
the single currency bloc. Markets have largely priced in a half
percentage point rate cut to 2 percent.
Investors also see the probability of borrowing costs
falling more sharply, to 1.75 percent <ECBWATCH>.
"It will be important to closely monitor what (ECB
President Jean-Claude) Trichet has to say in the next few days.
The fundamental case for easing policy by at least another 50
basis points in January is strong," Brown Brothers Harriman &
Co said in a note to clients.
There are 100 basis points in a percentage point.
The yen, on the other hand, fell to more than three-week
lows against the dollar amid improved risk appetite, with
bargain prices and hopes for a global economic recovery this
year prompting gains in European and Japanese stocks.
The Japanese currency had surged last year as investors
sold all risky assets financed with the yen's cheap rates.
The dollar <JPY=> climbed to 93.56 yen according to Reuters
data, its highest since Dec. 8. It was last at 93.01 yen, up
0.9 percent.
The dollar index <.DXY>, measuring it against a basket of
six major currencies, rose as high as 83.174, its strongest
since Dec. 15.
(Additional reporting by Veronica Brown in London; Editing by
James Dalgleish)
