* Aussie hits 14-mth high as RBA raises rates to 3.25 pct
* Dollar index down 0.4 percent at 76.356 <.DXY>
* Dollar hit by report of talks to replace $ in oil trade
* Saudi, Kuwait, UAE, Russia, Algeria deny dollar oil report
(Updates with Aussie extending gains, quotes, changes byline)
By Emelia Sithole-Matarise
LONDON, Oct 6 (Reuters) - The dollar fell on Tuesday on a
media report, later denied, that Gulf Arab states were in talks
to abandon the U.S. currency in oil trade, while the Australian
dollar rose after the central bank raised interest rates.
The U.S. dollar had already been under pressure on
expectations the U.S. Federal Reserve would not rush to raise its
interest rates and on a growing view that the greenback has
become a funding currency for carry trades.
The Reserve Bank of Australia raised its key cash rate by 25
basis points to 3.25 percent, becoming the first Group of 20
central bank to hike as the global financial crisis eases.
[]
Analysts said other countries could begin to consider
raising rates as the crisis subsided.
A rise in equity and commodity prices on the back of strong
U.S. data the previous day also drove investors from the U.S.
dollar and into perceived riskier assets.
"Despite the fact that we have the first central bank to
come out with a rate hike it's still very much a risk happy
environment," said Tom Levinson, a currency strategist at ING in
London.
"(With) a central bank tightening rates some might question
whether that might not be a bit of a problem for the risk
environment and that might help the dollar a bit, but certainly
not. Risk seems pretty much on. That combined with that oil
story helped the dollar turn weaker."
The Australian dollar rallied to a 14-month high <AUD=D4> of
$0.8883 to trade 1.12 percent up by 1045 GMT. The New Zealand
dollar also hit a 14-month high, rising to $0.7357 <NZD=D4>.
For a graphic comparing central bank rates, click here:
http://graphics.thomsonreuters.com/109/AU_CBRTS1009.gif
The dollar index, which tracks the performance of the
greenback versus a basket of six major currencies, was down 0.4
percent at 76.354 <.DXY>, inching back towards a 13-month low of
75.827 hit in late September.
The euro rose 0.5 percent on the day to $1.4724 <EUR=> while
the dollar fell 0.55 percent against the yen to 89.01 yen
<JPY=>, edging closer to an eight-month low of 88.23 yen hit
last week.
Traders said options worth 200 million euros with a strike
price of $1.4750 were due to expire later in the day.
Options worth almost $1 billion in dollar/yen with strike
prices in a range of 88 to 91 yen may limit the dollar's upside.
AUSSIE SURGES
Some traders said the Australian dollar would push higher on
expectations of further monetary tightening.
But others said more rate increases were already factored in
and the Aussie's upside would probably be limited around $0.90.
While the Fed and the European Central Bank may be in no
hurry to raise rates, "other central banks appear more willing
to reverse some of the massive monetary accommodation that has
been put in place over the past year," said Stuart Bennett,
currency strategist at Calyon.
Earlier, the U.S. dollar fell after Britain's Independent
newspaper reported Gulf Arab states were in secret talks with
Russia, China, Japan and France to replace the dollar with a
basket of currencies in oil trading over nine years.
[]
But Saudi Arabia's central bank chief said the story was
"absolutely incorrect" [] while authorities from
Kuwait and United Arab Emirates said they did not see any need
for a new currency for oil trade.
Russia had not discussed changing the dollar's role in the
global trade of oil, deputy Russian finance minister Dmitry
Pankin said. [] Japanese finance minister Hirohisa
Fujii also said he was unaware of the report.
(Additional reporting by Tamawa Desai, editing by Nigel
Stephenson)
