In the currency market, the dollar rallied against the euro. Late Tuesday, the euro was trading at $1.3319 vs. $1.3365 on Monday.

“Optimistic comments from Federal Reserve Chairman Ben Bernanke and a slower pace of contraction in the service sector have helped to drive the U.S. dollar higher,” said Kathy Lien, director of currency research at Global Forex Trading.

The Institute of Supply Management reported yesterday that its non-manufacturing (services industry) index improved to 43.7% from 40.8% in March. While readings below 50% still indicate contraction, it was the index’s first increase since January.

The gain beat the expectations of economists, who had been projecting the index to rise only to 42%.

“This report is an encouraging sign that the intensity of the recession is diminishing,” wrote John Ryding and Conrad DeQuadros of RDQ Economics.

And Big Ben chipped in with: “The recent data … suggest that the pace of contraction may be slowing, and they include some tentative signs that final demand, especially demand by households, may be stabilizing.”

But a lot of nervousness remains over the release of the bank stress test results, expected tomorrow, which is “an event risk and may be constraining US dollar gains,” said Marc Chandler of Brown Brothers Harriman.

Source: Dollar Rises Against Euro