* Dollar index hits one-year high on Freddie, Fannie news
* Takeover seen bolstering U.S. economic recovery
* Yen slides broadly on renewed risk appetite
(Recasts, updates prices, changes byline, dateline, previous
LONDON)
By Lucia Mutikani
NEW YORK, Sept 8 (Reuters) - The U.S. dollar jumped to a
one-year peak versus a basket of currencies on Monday amid
optimism the government's takeover of two mortgage giants would
heal the battered financial sector and foster economic growth.
The bailout of the troubled Freddie Mae <FRE.N> and Fannie
Mae <FNM.N>, which own or guarantee half of the United States'
$12 trillion in outstanding home mortgage debt, was seen by
some as a positive step to stave off wider financial and
housing market weakness.
"This is not only positive for Freddie and Fannie
themselves but positive for the U.S. financial sector, equities
and the U.S. economy," said Michael Woolfolk, senior currency
strategist at Bank of New York Mellon in New York.
"The argument is that once you can stop the bleeding of the
mortgage sector, and hence the financial sector in the U.S.,
then the economy can bottom and we make a long-term recovery."
The ICE Futures U.S. dollar index, which measures the value
of the dollar against a basket of six currencies, surged to a
one-year high of 79.416 <.DXY>, according to Reuters data. It
was last up 0.8 percent at 79.140.
In New York morning trade, the euro was down 0.3 percent at
$1.4218 <EUR=>, not far from a session low of $1.4164.
The dollar initially fell in the aftermath of the weekend
action as investors took the government's takeover of the
stricken mortgage agencies as an excuse to pile back into
riskier assets, sending stock markets soaring and the
safe-haven Japanese yen sharply lower.
The dollar last traded up 0.8 percent at 108.63 yen <JPY=>.
The euro rose 0.6 percent to 154.44 yen <EURJPY=>.
FUNDAMENTALS UNCHANGED
Analysts said that while the news did much to allay concern
about systemic financial market risk, it did little to change
fundamentals that had started to drive the dollar up prior to
the weekend -- slowing growth in the euro zone and the UK.
"Although the Treasury announcement has generated a surge
of optimism we continue to view the move as a sign of long-term
weakness rather than strength for the U.S. capital markets,"
said Boris Schlossberg, director of FX research at GFT Forex in
New York.
"After the initial euphoria toward the dollar dies out, the
low-yielders like the yen and the (Swiss) franc should resume
their upward trek as investors take a more sober look at U.S.
economic conditions and risk aversion returns to the market."
U.S. Treasuries sank and European shares rallied roughly 4
percent on the news of loss-stricken Fannie Mae and Freddie Mac
being put into government conservatorship.
Sterling reversed earlier gains versus the dollar after UK
manufacturing output prices suggested factory gate inflation
might have peaked. The pound <GBP=> was last down 0.1 percent
at $1.7635. The euro <EURGBP=> was down 0.1 percent at at 80.63
pence.
The improvement in investors' appetite for risk pushed the
New Zealand dollar <NZD=> up more than 1.0 percent to
US$0.6758, while its Australian counterpart <AUD=> rose 0.8
percent to US$0.8222. The two currencies also posted big gains
versus the yen.
(Additional reporting by Veronica Brown in London; Editing by
James Dalgleish)
