In the currency market, the dollar gained against the euro. Late Wednesday, the euro was trading at $1.2718 vs. $1.2868 on Tuesday.

The U.S. dollar pushed higher against most major rivals Wednesday as downbeat economic data and more weakness on Wall Street increased safe-haven flows to the greenback. Dismal global data also weighed on the euro, Japanese Yen and British pound, making the U.S. dollar seem relatively more attractive.

U.S. stocks fell for the seventh day in eight after a report showed sales of previously owned homes unexpectedly declined in January, even as falling prices made them more affordable. Purchases fell 5.3% from December to an annual rate of 4.49 million, the fewest since 1997, the National Association of Realtors said yesterday.

Also on Wednesday, the Treasury Department began to apply a series of new stress tests for the nation’s 19 largest banks as part of a new capital injection program that, in spite of what Bernanke has said, could lead to the nationalization of several financial institutions.

According to the “stress test” approach, government regulators are looking at each financial institution’s balance sheets and capital needs over the next two years and evaluating how much capital the company will need over that period.

Based on that analysis, the government would press financial institutions to convert their taxpayer-funded preferred shares into common shares when losses that were forecasted by the stress test actually occur.

As part of the plan, a bank could also receive new government-funded preferred shares that are converted to common shares if it turns out projected losses materialize. Like the stakes banks have already received from the Treasury, these new shares are issued in exchange for taxpayer funds.

Investors in common shares are concerned about the plan for two reasons, at least. Preferred shares are higher in the capital structure of a company, and in the event that a firm goes bankrupt and is liquidated, preferred shareholders could be in line to collect something, while common holders would get nothing. Shareholders are also concerned about the conversion of preferred shares into common because such a move would make current shares worth less through dilution. In other words, the more shares of common stock outstanding, the less valuable each share is.

Source: Dollar Gains Against The Euro