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Dollar decline continues: New 14-month low vs euro

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[October 26, 2009]  NEW YORK (AP) -- The dollar hit a fresh 14-month low against the euro as a regional Chinese central bank researcher argued for diversification of the country's reserves away from the greenback, while a strong economic report from South Korea sparked an equities rally and dulled the buck's safe-haven luster.

HardwareThe euro touched a 14-month high of $1.5061 in overnight trading before falling to $1.5023 early in New York Monday. Late on Friday in New York, the euro was at $1.5002.

Meanwhile, the dollar dipped to 91.89 Japanese yen from 92.10 yen, and the British pound rose to $1.6327 from $1.6311.

South Korea's central bank on Monday said the Asian country's economy grew 2.9 percent in the third quarter, up from 2.6 percent growth the previous three months. That's the fastest pace of growth for Asia's fourth-largest economy since the beginning of 2002 and underscored the region's recovery. Last week, China said its economic output rose 8.9 percent in the third quarter. Japan's economic activity increased at an annual pace of 2.3 percent in the second quarter.

The news on South Korea's recovery sent markets higher and the dollar lower.

The dollar dropped to 1172.60 South Korean won early Monday from 1188.30 won late Friday.

Investors have tended in the past year to buy the dollar as a safe haven when economic reports or corporate earnings are worse than markets had expected. Earnings that are surprisingly strong are driving the buck lower as investors are prompted to seek out higher returns than they can get from the low-yielding dollar.

That low yield comes from the rock-bottom U.S. interest rate near zero that the Federal Reserve is maintaining to prompt lending and economic growth.

Politicians and bank officials from big exporters, including China, that hold huge amounts of U.S. Treasurys as reserves have expressed unease with this situation as the value of their dollar holdings falters.

On Monday, a regional People's Bank of China researcher said in a report that the country should increase the amount of currencies other than the dollar in its reserves in a newspaper published by the Chinese central bank.

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The bank sometimes publishes the opinions of officials or researchers as a way of gauging public reaction to different policy approaches. Simply publishing such a report doesn't mean that policy will happen, but several more high-profile officials this year have voiced concerns about the U.S. dollar, which has been dropping steadily since spring, and talked up alternatives to the buck as the world's supreme reserve currency.

China's reserves are the biggest in the world. The country is the biggest buyer of U.S. government debt and is believed to keep almost half of its reserves in U.S. Treasurys and notes issued by government-affiliated agencies.

"China has shown little sign of diversifying out of reserves," wrote Brown Brothers Harriman currency analysts in a note to investors Monday morning.

In other early New York trading, the dollar edged up to 1.0576 Canadian dollars from 1.0523 late Friday, but slipped to 1.0065 Swiss francs from 1.0087 francs.

[Associated Press]

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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