The U.S. dollar fell to two-month lows against the euro and a basket of currencies on Monday, pressured by uncertainty over the fate of U.S. automakers and reduced safe-haven flows.

The dollar was starting to respond negatively to concerns about further weakness in the U.S. economy, analysts said, after a run of weak data caused an exodus from risky positions and increased flight-to-quality buying in the currency.

Investors shunned the greenback amid fears a failure of one or more of the automakers could exacerbate a year-long recession and drag down other companies.

“The uncertain outlook for the U.S. automakers continues to keep investors wary of over exposure to the dollar at this point,” said Omer Esiner, senior market analyst at Ruesch International in Washington.

“We’re starting to see a shift in the market where negative data is starting to actually impact the dollar negatively, which is contrary to what we’ve seen for the better part of the last couple of months,” he added. “We’re seeing a naturally weaker dollar as we get into the year end, so bad news is only exacerbating the need for investors to just exit their long dollar positions.”

In early New York trading, the euro was up 1.5 percent at $1.3570 , after climbing as high as $1.3584, the highest level since Oct. 15, according to Reuters data.

The ICE Futures U.S. dollar index, which tracks the value of the greenback against a basket of six currencies, hit a low of 82.517, the weakest level since Oct. 20. It last traded down 1.3 percent at 82.606.

A more upbeat tone in the global equities market also helped ease extreme risk aversion, reducing the greenback’s safe-haven appeal and boosting demand for higher-yielding currencies.

The Australian dollar rose 1.1 percent and the New Zealand dollar was up 1.5 percent .

Against the yen, the dollar fell 0.9 percent to 90.31 , after hitting a more than 13-year high of 88.10 yen on Friday. But yen gains were capped on speculation that Japanese authorities could intervene to stem further currency strength.

BAILOUT IN FOCUS

The White House said on Friday it was considering tapping a $700 billion financial industry bailout fund to prevent a collapse of ailing U.S. automakers. That came after the U.S. Senate on Thursday rejected a bailout plan to avert a possible bankruptcy by one or more of the nation’s three automakers.

But U.S. President George W. Bush said on Monday an announcement on a car industry rescue was not imminent, leaving the industry’s fate clouded.

Investors also awaited the outcome of a policy meeting by the Federal Reserve on Tuesday to see how close to zero the U.S. central bank will cut interest rates and what alternative measures it will take to boost the economy. The Fed is widely expected to cut rates by at least 50 basis points from the current 1 percent.

“What the Fed says will likely overshadow its rate move,” currency strategists at Brown Brothers Harriman, wrote in a research note. “Many investors are looking for insight into where the Fed anticipates ending the rate cuts and what other non-traditional steps will the Fed adopt.”

Wanfeng Zhou
NEW YORK, Dec 15 (Reuters)

Gold slipped in Europe on Thursday as the dollar firmed against the euro ahead of an expected rate cut by the European Central Bank later in the session, and oil prices fell $1 a barrel.

Investors are eyeing rate cuts this session from both the ECB and the Bank of England and key U.S. jobs data on Friday for clues as to the future direction of trade.

Spot gold slid to $769.25/771.25 an ounce at 1000 GMT from $772.60 an ounce in New York late on Wednesday.

“With a lower euro-dollar and lower oil, gold is pressured a bit,” Commerzbank senior trader Michael Kempsinki said. “Around $735, $750, we should see some good buying interest coming into the market.”

The dollar firmed in early trade against the euro, as did the yen, as investors worried about the breadth and depth of the global recession bought into the currencies.

A stronger dollar tends to weigh on gold, which is commonly bought as a hedge against weakness in the U.S. currency.

The European Central Bank and Bank of England are expected to announce rate cuts later in the session.

The ECB is widely seen cutting by 50 basis points to 2.75 percent, while the BoE could slash its rates by up to 1 percentage point to 2.00 percent.

The other main external driver of gold, oil prices, added pressure on the precious metal as they fell to a four-year low on Thursday.

Oil has been hit by concerns that a deep recession could have a severe impact on demand. These outweighed the price-positive effect of a 400,000-barrel drop in U.S. crude inventories reported on Wednesday.

Physical demand is easing in some of gold’s traditional markets as traders await price falls. Indian buyers are looking for prices of around $740 an ounce before making purchases, dealers reported.

PLATINUM STEADIES

Platinum prices were steady, but held only a touch over those of gold, as traders worried about the impact of the recession on carmakers, who account for around half of all demand for the white metal.

“Concerns over industrial demand for the metals – particularly from the auto sector – will continue to keep prices under pressure for the time being,” Standard Bank analyst Leon Westgate said in a note.

“In the background however, mounting production cutbacks and mine closures suggest that there may be a very rapid price recovery once the first signs of increased metals demand start to emerge,” he added.

Spot platinum was quoted at $796.50/816.50 an ounce, little changed from $793.50 in New York trade late on Wednesday. Its sister metal palladium was at $170/178 an ounce against $171.

Zurich Cantonal Bank said holdings of its platinum-backed exchange-traded fund rose 27 percent to 105,200 ounces on Dec 1, from 83,000 ounces in September. Its palladium-backed ETF saw inflows of 12 percent in the same period.

Among other precious metals, spot silver slipped to $9.57/9.65 an ounce from $9.63.

The world’s largest silver-backed ETF, the iShares Silver Trust (SLV), said its silver holdings fell 32.24 tonnes to 6,651.79 tonnes on Dec 3.

Jan Harvey,Sue Thomas
LONDON, Dec 4 (Reuters)