* Dollar under pressure on ratings concerns, risk-taking
* Dollar index drops to 2009 low, euro breaks $1.40
* Focus on U.S. Treasury auctions next week
(Adds details, updates prices)
By Wanfeng Zhou and Vivianne Rodrigues
NEW YORK, May 22 (Reuters) - The U.S. dollar dropped to its
lowest level this year on Friday, and was on track for its
biggest weekly fall in two months, on growing concerns about
the AAA-rating status of the United States.
Investors worried about the U.S. sovereign credit rating
after Standard & Poor's said it might cut Britain's AAA rating
on Thursday, triggering heavy selling of in U.S. Treasury bonds
and the dollar, although U.S. stocks edged up on Friday.
The ratings outlook downgrade of Britain focused attention
on soaring fiscal deficits and debt in the United States fueled
in part by the unprecedented efforts by the U.S. Treasury and
the Federal Reserve to bolster the financial system.
"The fact that the market has seized on these concerns
suggests that the impact of the recent monetary and fiscal
easing is starting to grow, and certainly that points to a
lower dollar moving forward," said Todd Elmer, currency
strategist at Citigroup in New York.
A rise in U.S. stocks and more upbeat views of the
recession-hit global economy also encouraged risk-taking by
investors, helping the euro break above $1.40, while sterling
hit a 6 1/2-month peak versus the dollar.
The dollar has come under heavy pressure in recent weeks as
growing optimism that the worst of the global economic slump
may be past dented safe-haven flows into dollar-denominated
assets.
"So far, the market (has been) very much focused on the
global recession and ... how quick and strong will the recovery
be," said Matthew Strauss, senior currency strategist at RBC
Capital Markets in Toronto.
The S&P news "has opened for the dollar a very worrying
Pandora's box," he said.
The dollar index <.DXY> was on track for a 3.6 percent drop
this week, the worst week since March. The index has lost more
than 5.0 percent so far in May, one of its steepest monthly
declines over the last 25 years.
In afternoon trading in New York, the ICE Futures U.S.
dollar index <.DXY>, a gauge of its value against six major
currencies, was down 0.6 percent on the day after hitting
79.805, a fresh 2009 low.
The euro was up 0.8 percent at $1.4009 <EUR=>, after
hitting a session peak of $1.4050, according to Reuters data,
the highest since early January.
However, the United States does not believe that its AAA
credit rating will be cut, White House spokesman Robert Gibbs
said on Friday. On Thursday Moody's Investors Service on
Thursday said it is comfortable with its Aaa sovereign rating
on the United States, but the rating was not guaranteed
forever. []
Meanwhile, Eurogroup Chairman Jean-Claude Juncker told
Reuters on Friday a further rise of the euro could hamper
economic recovery in the euro zone, although such a recovery is
still some way off. []
TREASURY AUCTION
Some analysts said the market's reaction following the S&P
announcement about Britain may be overblown as major
industrialized countries will likely see increased fiscal
spending across the board.
A test of investor appetite for dollars and dollar assets
will come next week when the U.S. Treasury auctions $101
billion of two-, five- and seven-year paper, they said.
"A downgrade of U.S. debt would clearly have a
psychological impact on the market, but I do think most
industrialized economies are in the same boat," said Omer
Esiner, senior market analyst at Travelex Global Business
Payments in Washington.
The dollar also fell earlier to a two-month low against
the yen after Japanese Finance Minister Kaoru Yosano said on
Friday the country is not thinking about intervention in the
currency market. []
The dollar later rebounded and traded 0.4 percent up at
94.81 yen <JPY=> after dipping to 93.86 yen, according to
Reuters data.
Sterling continued to rebound after an initial sell-off
following S&P's announcement. It was up 0.4 percent at $1.5911
<GBP=D4>, after rising as high as $1.5947, its strongest since
early November. The pound was on track for its best weekly
performance against the dollar since early February, with a
gain of about 4.7 percent.
U.S. financial markets will be closed on Monday for the
Memorial Day holiday, while British markets will also be shut
for a holiday.
