* Dollar down after two-year peak vs dollar index
* Euro slumps to two-year low against dollar, rebounds
* Brazil's central bank offers dollars
(Recasts; updates prices, changes byline)
By Nick Olivari
NEW YORK, Oct 23 (Reuters) - The dollar was lower on
Thursday, after earlier climbing to a fresh two-year high
against the euro and a basket of currencies, after aggressive
dollar selling by Brazil's central bank helped lend some
stability to emerging market currencies, analysts said.
Emerging market currencies have borne the brunt of the
global financial crisis in recent weeks as U.S.-based investors
offloaded assets in these markets and repatriated the funds.
Analysts were skeptical that the calm would be sustainable,
with investors wary of a sharp global economic downturn and a
poor corporate profit outlook, but investors on Thursday
loosened their faith in reserve currencies.
"The Brazilian central bank intervened materially and
bought reais against the dollar ... that seems to have calmed
the price action, not only in the G10, but global currencies as
well," said Dustin Reid, head of FX strategy at RBS Global
Banking & Markets in Chicago.
"We have seen a significant reversal in a lot of those
currencies. The Brazilian central bank action has had a
turnaround effect, (but) I am looking for risk aversion to
dominate markets in the coming weeks and months despite this."
Brazil's central bank twiced intervened on the spot market
to offer dollars and said it was reaedy to sell dollar swap
contracts up to a hefty $50 billion. For details, see
[]
The euro was last up 0.5 percent at $1.2914, after briefly
racing to a session peak of $1.2938 <EUR=>, according to
electronic trading platform EBS. Earlier, the European single
currency slumped to a two-year low of $1.2726.
The ICE Futures U.S. dollar index rose as high as 86.120, a
level last seen in late 2006, according to Reuters data. The
index, which measures the dollar's value against a basket of
six currencies, was last down 0.3 percent at 85.157 <.DXY>.
EMERGING CURRENCIES RECOVER
The dollar was down 5.2 percent against the Brazilian real
at 2.25350 <BRBY>. Other rallying currencies included the South
African rand, which strengthened 5.7 percent against the dollar
to 10.9500 <ZAR=D3>.
The dollar dipped 0.2 percent against the Turkish lira to
1.69 lira <TRY=>.
Trouble in emerging markets has compounded worries about
the outlook for the global economy, with countries such as
Hungary and Argentina taking desperate measures to shore up
their ailing economies. Such developments have helped the
dollar maintain a safe-haven bid in recent weeks.
The euro was last up 0.3 percent at 125.80 yen <EURJPY=>,
having touched a fresh six-year low of 123.15 yen, according to
Reuters data.
The dollar was 0.5 percent down at 97.400 yen <JPY=> after
falling to a seven-month low of 95.94 yen on EBS <JPY=EBS>.
Both the dollar and the yen have surged against
higher-yielding currencies this week as risk demand has
shriveled. Evaporating liquidity has led to severe volatility
in most markets, and analysts said currencies remained
vulnerable to erratic moves.
"What is going on is that investors are still very panicky
and very much in a trigger-happy mood," said Boris Schlossberg,
director of foreign exchange research at GFT Forex in New
York.
"The reason we have such volatility is because visibility
is completely clouded. Almost all asset classes are being
priced for a very serious, almost depression-like scenario and
the market is waiting to see if this is going to happen."
The yen has shot up drastically versus the euro and other
high yielders such as the Australian and New Zealand dollars as
investors dumped positions that had used the low-yielding
Japanese currency to buy assets in higher-yielding ones.
Sterling <GBP=> fell 0.4 percent to $1.6229, after tumbling
to a five-year low against the dollar around $1.6046 due to
concerns about the country's vulnerability to the financial
crisis.
(Reporting by Nick Olivari and Lucia Mutikani; editing by Gary
Crosse)
