The only question was how quickly the money would hit the streets, and Jing Ulrich, J.P. Morgan Chase, said that, “With a healthy fiscal surplus and low government debt, China appears to have considerable resources to ramp up its fiscal spending in a short period of time.”

Weekend news of the Chinese package had lifted equity markets around the world and revived risk appetite, but only momentarily in the U.S. as domestic stock markets ended the day down and the buck—which has been a primary destination for the risk-averse for some time now—gathered some late steam.

China’s plan “could well form the starting point of a coordinated fiscal-stimulus plan as world leaders [the G20] gather in Washington later this week,” wrote strategists at Lloyds TSB.

And it could prove to be a defining moment in the global crisis, thinks Neil Mellor, currency strategist at Bank of New York Mellon. But Mellor wrote that “even if this optimistic scenario ultimately proves to be correct, the inevitable and continued deterioration in global economic data may prove to be a rather overwhelming test of the market’s mettle in the meantime.”

Source: Dollar cuts early losses -  China’s stimulus package the talk of the trade

The buck did receive a brief morning boost after U.S. manufacturing data came in better than expected. The Institute for Supply Management’s index for May improved to 49.6% from 48.6% in April. Although anything below 50% is negative, that number was above the 48.7% predicted by economists.

But, “Dollar gains were short lived following the U.S. data,” wrote currency analysts at Action Economics. “Overall, it appears the dollar’s downside has again quickly taken the spotlight, though dealers largely do not foresee significant losses from here on Monday.”

Looking ahead, Michael Woolfolk, senior currency strategist at the Bank of New York Mellon, wrote that, “The continuation of the U.S. dollar’s rally this week will depend in part on sentiment, with crude oil and equity prices important barometers.”

And Fed watchers noted that Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said in a speech yesterday that, “Although conditions have improved on some fronts, I don’t feel we can yet ‘breathe easy’.”

“I would characterize the current position of the overall economy as growing slowly, poised for gradual recovery, but carrying real risks that could subvert the story,” Lockhart said.

Source: Dollar Little Changed – ISM Data Weak, but better than Expected