* Dollar rises as Citi reports smaller-than-expected loss
* Euro capped as Trichet notes risks to growth
* Broad dollar sentiment still clouded by financial woes
(Recasts, updating prices and comment, changes dateline,
previous LONDON)
NEW YORK, July 18 (Reuters) - The dollar rose against a
basket of six major currencies on Friday, boosted by news
Citigroup Inc. <C.N> posted a smaller-than-expected loss in the
second quarter, further calming fears about the health of the
U.S. financial sector.
The results from Citi, the largest U.S. bank, add to
positive earnings news from other banks such as Wells Fargo &
Co. WFC.N and JP Morgan Chase & Co. <JPM.N> earlier this week.
As well as injecting fresh impetus into the dollar, Citi's
results increased optimism in the stock market.
"Citi earnings have encouraged the market to take on more
risk and given (the dollar) a lift," said Stephen Malyon,
senior currency strategist at Scotia Capital in Toronto. They
were "consistent with other bank earnings seen earlier this
week which has turned sentiment around on the dollar a little
bit."
The dollar also benefited from sharp falls in sterling
after the Financial Times reported the UK Treasury is working
on plans to change its fiscal rules.
This could effectively give it more leeway to increase
borrowing as a way of mitigating the effects of an anticipated
economic slowdown. See [].
Early in New York, the dollar index, which tracks its
performance against a basket of six major currencies, was up
0.3 percent at 72.250 <.DXY>, though still close to the record
low of 70.698 hit in March after the Federal Reserve
coordinated JP Morgan Chase's takeover of Bear Stearns.
Sterling was down 0.3 percent at $1.9950 <GBP=>, even
though the UK Treasury dismissed the FT report as "pure
speculation."
The euro fell 0.3 percent to $1.5816 <EUR=>, and the dollar
was up 0.6 percent against the yen at 106.85 yen <JPY=>.
The euro was capped by European Central Bank President
Jean-Claude Trichet's comments published on Friday that euro
zone growth is likely to be weak in the second and third
quarter before staging a recovery.
Risks to growth were on the downside, Trichet said in a
joint interview with four European newspapers.
[].
For the week, the euro has lost 0.8 percent against the
dollar, while the dollar rose 0.7 percent against the yen.
SENTIMENT STILL HAUNTED
Despite the boost, dollar sentiment was still looking quite
shaky, given concern over the U.S. financial system and bleak
growth prospects due to the slumping housing market.
U.S. mortgage giant Freddie Mac <FRE.N> said in an SEC
filing it expects to purchase mortgages with significantly
higher unpaid principal balances and that realized credit
losses will continue to increase. [].
The Wall Street Journal reported on Friday that Freddie is
considering raising capital by selling as much as $10 billion
in new shares. See []. That plan would preclude
the need for a government investment, FTN Financial told
clients in a research note.
"The situation for the dollar near-term is still quite
negative. The macro-economic implications of the financial
market turmoil to date have not really been borne out of the
U.S. data, because of the huge fiscal stimulus plan that has
kept the economy from sinking," said Derek Halpenny, senior
currency economist at BTM-UFJ in London.
"That's going to fade now and over the next couple of
months we will see that come through in the data. That will
keep the market in a fragile state, and that suggests there is
still more potential for the dollar to slide again," he added.
Another focus for currency traders remains the price of
crude <CLc1>, which until this week had maintained a close
inverse correlation with the dollar.
Oil slid more than $10 in the last three days and fell to a
six-week low but recovered on Friday <CcL1>.
(Reporting by Nick Olivari, additional reporting by Veronica
Brown in London, Editing by Chizu Nomiyama)
