The U.S. dollar fell against the euro and a basket of currencies on Tuesday as weak U.S. housing data and a dim economic outlook for the start of 2009 weighed on the currency.

The contrast of aggressive monetary easing in the United States versus a more cautious European Central Bank is lending support to the euro while hurting the greenback, analysts said.

Some market participants also cited the ongoing conflict in Gaza and Israel, as supporting the Swiss franc near a five-month high.

Meanwhile, sterling continued its downtrend, hitting a 6-1/2 year low against the U.S. dollar and hovering near record lows in sight of parity against the euro on prospects of UK interest rates being cut further amid a deep economic downturn.

In morning trading in New York, the euro was up 1.2 percent on the day at $1.4148, according to Reuters data.

“The Fed continues to be extremely proactive while the ECB has been much more cautious,” said Jessica Hoversen, a fixed income and currency analyst at MF Global Ltd. in Chicago. “As a result, we have the end of the year yield differentials between the two regions that favor the euro, at least for now.”

U.S. interest rates are close to zero and policymakers have said they are ready to take more unconventional steps of providing liquidity to bolster the moribund economy.

In contrast, key interest rates in the euro zone stand at 2.5 percent, and policymakers have been unclear about how much rates will be cut further in the near future.

Hoversen added thin market conditions during the holidays and a weak outlook for key U.S. sectors, such as housing, may help push the dollar lower in the next couple of days.

Prices of U.S. single-family homes in October plunged a record 18.0 percent from a year earlier, according to the Standard & Poor’s/Case-Shiller Home Prices Indices released on Tuesday.

“The numbers are certainly very bad,” said Kathy Lien, director of FX research at GFT Forex in New York. “But there is one silver lining though. The pace of the decline seems to have slowed during the month.”

The U.S. dollar index slipped about one percent against a basket of currencies to 80.595.

EURO NEARS PARITY

Sterling fell as low as $1.4385, its weakest since early 2002, according to Reuters data, while the euro rose 1.4 percent to 97.79 pence, hovering near a record high of 98 pence hit on Monday.

“The market has been focusing a lot on the weakness in the U.K. economy,” said Hoversen at MF. “It seems the pound will be ‘forced’ to touch parity with the euro pretty soon.”

Demand for the Swiss franc rose since Monday after the Israeli attacks at Gaza had triggered so-called “safe-haven” demand for the Swiss currency and gold. The dollar was last slightly lower at 1.0586 , after trading as low as 1.0367 francs on Monday, its weakest since late July,

The dollar slipped 0.2 percent to 90.36 yen, inching lower to 87.13 yen hit earlier in the month, its weakest since mid-1995.

Data highlights on Tuesday also include a release on consumer confidence in December and a reading of factory activity by the Institute of Supply Management.

NEW YORK, Dec 30 (Reuters)

• Crude oil for December delivery declined 1.4% yesterday (Monday) with a 93-cent drop to close at $63.22 a barrel on the New York Mercantile Exchange. Oil futures are down 57% from the July 11 record of $147.27 and 31% down from a year ago, Bloomberg News reported.  “With all of the stock markets going down, there’s going to continue to be downward pressure,” said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. (MF) in New York. “There’s not a lot that can be done to stop this downward spiral right now.”

• Shares of German automaker Volkswagen AG (ADR OTC: VLKAY) skyrocketed over 120% yesterday (Monday) with a gain of $64.75 to close at $118.00. Porche SE (PINK: POAHF) announced late Sunday that it would increase its stake in Volkswagen to 75% in 2009, The Wall Street Journal reported. The sudden price spike was due in part to Volkswagen’s relatively small free float, as Porche is just shy of a 75% ownership stake and the German state of Lower Saxony controls 20%.

• The Japanese yen hit a 13-year high versus the dollar yesterday (Monday), trading at just under 94 yen to the dollar. Fear of the effect the strong yen would have on exports sent the Nikkei 225 to a 26-year low of 7,162.90 after losing 6.4% for the day. The key Japanese benchmark is down 53% year-to-date, BusinessWeek reported.

• Verizon Communications Inc. (VZ) announced yesterday (Monday) third-quarter earnings were $1.67 billion, or 59 cents per share, up from $1.27 billion, or 44 cents a share, for the same period the year prior. But Chief Executive Ivan Seidenberg cautioned that economic weakness and poor consumer demand would have an effect in the fourth quarter. “For the Christmas season, consumer spending will be somewhat lighter, and business spending will be somewhat curtailed,” Seidenberg said in a conference call, The Associated Press reported.

• New home sales posted an unexpected increase in September, the Commerce Department reported yesterday (Monday). New, single-family home sales rose 2.7% in September to a seasonally adjusted annual rate of 464,000 homes. Sales were still down 33% from a year ago and off almost 68% from the peak reached July 2005.

• Wal-Mart Stores Inc. (WMT) said yesterday (Monday) that it is slowing the pace of U.S. store openings and cutting back on capital spending in the face of economic headwinds, The Associated Press reported. The company plans to open 191 stores in the current fiscal year and between 142 and 157 stores in the next fiscal year. Wal-Mart opened 218 U.S. stores in fiscal 2008. Wal-Mart also plans $5.8 billion to $6.4 billion in capital expenditures this fiscal year for its U.S. division, down from $9.1 billion last year.

• Goldman Sachs Group Inc. (GS) Chief Executive Lloyd Blankfein called Citigroup Inc.’s (C) Vikram Pandit last month about a possible merger, but Pandit rejected the proposal, a source familiar with the situation told Reuters yesterday (Monday). Blankfein’s call was made shortly after Goldman got the approval to become a commercial bank on September 21 and with the knowledge of regulators, the source said.

Source: Global Investing Roundups Tuesday, October 28th, 2008

“The announcement of the Chinese fuel price increase sent the market sharply lower,” Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. (MF) in New York, told Bloomberg News. “This should have a big impact on demand.”

Crude oil for July delivery fell $4.75, a decline of 3.5%, to settle at $131.93 a barrel at 2:50 p.m. on the New York Mercantile Exchange, the biggest drop since March 31, according to Bloomberg data.

China, the world’s second largest oil consuming nation, has been subsidizing refined oil products to the tune of $25 billion a year, but now is bowing to the high cost of oil that recently flirted with prices near $140 per barrel as recently as June 16.

The Asia nation will raise both the cost of gasoline and diesel by $145.50 (1,000 yuan) per metric ton. The cost of jet fuel will also increase by $218.25 (1,500 yuan) per metric ton.

“Global crude prices have been rising sharply and Chinese domestic fuel prices have lagged behind. The price difference has highlighted the contradiction between demand and supply,” state television said, quoting the National Development and Reform Commission (NDRC), Reuters reported.

Refinery share prices gained on the news, as they will now receive a higher price for refined products. Sinopec Shanghai Petrochemical Co. (ADR: SHI) shares gained $1.20, a 3% increase, to close at $42.03 yesterday.

Oil consumption in China was expected to increase 440,000 barrels to an average 8.02 million barrels a day this year, according to a report from Organization for Economic Cooperation and Development.

“The developing countries, in particular China, have been driving demand growth,” Eric Wittenauer, an analyst at Wachovia Securities (WB) in St. Louis, told Bloomberg. “Subsidies and price caps insulate consumers from the full impact of higher prices. By rolling them back, some of the insulation is reduced and we can expect to see a demand response.”

It had been expected that China would wait until after the Beijing Olympics to increase fuel costs, as inflation is already high and the government is hoping to avoid social unrest while the nation is in the global spotlight due to the games.

Hoping to curtail potential consumer unrest, Beijing pledged subsidies to lower income groups that will be hardest hit by the price increase including farmers, fishermen and cab drivers, Reuters reported.

Source: Oil Drops as China Ratchets up Fuel Costs