* Dollar index hits 2009 low; euro/dlr climbs to 2-mth high
* UK bank earnings lift Europe shares to year's high
* Oil jumps, stg, Aussie, kiwi, CAD at highest since autumn
By Naomi Tajitsu
LONDON, Aug 3 (Reuters) - The dollar hit its lowest level of
the year against a currency basket on Monday, stung by buoyant
risk demand as stocks rallied on the back of solid bank earnings
and surprisingly strong manufacturing sector data from Europe.
Currencies seen to be higher-risk climbed as European shares
hit their highest of 2009 after the bank results while strong
purchasing managers' indices from the euro zone and Britain
added to evidence that the worst of the global economic downturn
may be over.
The euro <EUR=> hit a two-month high against the dollar of
$1.4326 according to Reuters data, while sterling and the
Australian and New Zealand dollars hits their strongest since
autumn.
"The outperformance of pro-cyclical currencies against the
dollar has to do with not only with higher equities but oil
prices as well," said Phyllis Papadavid, currency strategists at
SG in London.
"In the absence of horrific news, the market goes into
default mode (to buy risky assets)."
The dollar index <.DXY>, a gauge of the U.S. currency's
performance against six other major currencies, fell to 77.978,
its lowest since December, as oil prices rallied more than 2
percent to a one-month high above $71 per barrel.
Also helping to batter the U.S. currency was a 1.6 percent
jump in European shares <> to their highest since November
as HSBC <HSBA.L> reported that profits halved from a year ago,
but were still ahead of forecasts [].
HSBC's announcement followed news that Barclays reported an
8 percent rise in half-year profit, though bad debts at the bank
almost doubled.
STRONG UK PMI
Sterling rose to its highest since late October of around
$1.6880 <GBP=D4>, helped by both the UK banking earnings and a
surprisingly strong UK PMI reading.
Among commodity-linked currencies, the Australian dollar hit
its highest since late September at $0.8410 <AUD=D4> while the
New Zealand dollar rose to $0.6680 <NZD=D4>, its strongest since
October. The Canadian dollar rose as high as C$1.0677 per U.S.
dollar <CAD=D4>, also its strongest since October.
Traders said the Aussie was being supported by expectations
that the Reserve Bank of Australia may drop a key reference on
monetary easing at its policy meeting on Tuesday while keeping
the cash rate unchanged at 3 percent.
The UK purchasing managers' index for manufacturing rose to
50.8 in July, moving into positive territory for the first time
since March 2008, while an equivalent survey on the euro zone
was also better than expected, further lifting optimism on the
global economic outlook [ID:nL3668821.
Market participants are awaiting the key U.S. ISM survey on
manufacturing activity later in the day, which is expected to
show a rise to 46.2 in July from 44.8 in June.
"I still see the market positive on risk -- it would need
very negative numbers out of the U.S. to dent risk appetite,"
said Nordea currency strategist in Copenhagen Niels Christensen.
In addition to the Reserve Bank of Australia, markets are
also anticipating policy decisions from the Bank of England and
the European Central Bank later this week for clues on each
central bank's outlook for the economy and monetary policy.
(Additional reporting by Jessica Mortimer, editing by Mike
Peacock)
