Dollar Advances Versus Euro as U.S. Stocks Gain, Oil Declines

By Ye Xie and Kim-Mai Cutler

July 29 (Bloomberg) -- The dollar rose against the euro for the first time in three days as U.S. stocks increased and crude oil prices dropped, reducing concern the world's largest economy may fall into a recession.

``Equities are slightly up after yesterday's sharp sell- off,'' said Matthew Strauss, senior currency strategist in Toronto at RBC Capital Markets Inc., a unit of Canada's biggest bank by assets. ``The market started the day with a slightly positive tone. That's translating into broad dollar strength.''

The dollar increased 0.3 percent to $1.5689 per euro at 9:32 a.m. in New York, from $1.5741 yesterday. The U.S. currency appreciated 0.3 percent to 107.81 yen, from 107.46. The euro traded at 169.14 yen, compared with 169.17.

Sterling weakened 0.4 percent to $1.9853 after the Confederation of British Industry said its survey of 82 retailers showed 25 percent sold more goods than a year earlier and 61 percent sold fewer. The net rounded balance of minus 36 percentage points was the lowest since the survey began in 1983.

A gauge of French consumer sentiment dropped to minus 48 in July, the lowest level since the index was introduced in 1987, from minus 46 in June, according to Insee, the national statistics office in Paris.

``The euro-zone economy's outlook has really become more bleak,'' said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. ``Ultimately, that means the upside for the euro-dollar is becoming more capped at the moment.'' Rabobank forecasts the euro will decline to $1.55 by year-end, Lambregts said.

ECB Rate Outlook

Traders reduced bets the ECB will raise its 4.25 percent main refinancing rate this year. The implied yield on the December Euribor futures contract dropped to 5.09 percent, from 5.12 percent yesterday.

China's yuan increased versus the dollar after central bank Governor Zhou Xiaochuan underscored policy ``continuity,'' spurring speculation China will let the currency rise further to stem inflation. The yuan rose 0.1 percent to 6.8256 per dollar.

The yen declined earlier against the dollar after government reports for June showed Japan's unemployment rate rose to the highest level in almost two years and household spending fell, adding to signs the economy's longest postwar expansion may be ending.

The Standard & Poor's 500 Index increased 0.4 percent after dropping 1.9 percent yesterday.

Crude oil for September delivery dropped as much as 1.2 percent to $123.25 a barrel. The euro-dollar exchange rate and oil have moved in the same direction 90 percent of the time during the past year, according to Bloomberg calculations based on the correlation of their value changes.

U.S. home prices in the S&P/Case-Shiller index decreased 15.8 percent in May from a year earlier. The median forecast of 25 economists surveyed by Bloomberg News was for a drop of 16 percent.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net.