Dollar surges as reports show economic progress

The dollar sprang higher yesterday extending its already steep gains, after two regional reports suggested more US economic resilience than expected.

The US currency skipped higher, bringing its session gains to more than 1 per cent against the euro, yen and Swiss franc in a swift, decisive reaction to a stronger-than-expected reading for the Chicago Purchasing Management index.

The index rose to 52.2 in May; in expansion territory and exceeding economists' expectations for a reading of only 48.8.

"The markets were surprised at the strength in the Chicago Purchasing Management survey. It indicates that the US economy may be doing slightly better than the markets had anticipated and the euro reacted by selling off in a pretty strong reaction to the number," said Mr Paresh Upadhyaya, currency analyst with Putnam Investments in Boston.

The dollar surgd into new, higher ranges, pushing up above the 119.50 area against the yen. The euro slumped to a low of $1.1738, down more than 1 per cent in value before climbing back to $1.1785, a loss of 0.95 per cent from Thursday's New York close. The euro is 1.5 cents below Tuesday's record high $1.1932.

The Dow Jones industrial average closed 1.6 per cent up at 8,850.26. Traders are increasingly evaluating whether the Fed will cut interest rates in June and whether the European Central Bank, which meets on Thursday, will ease monetary policy. Many strategists expect the ECB to cut rates in reaction to sluggishness in the euro-zone economy.

US consumer sentiment rose for the second straight month in May as rising stock markets lifted consumer spirits, overshadowing a dismal jobs market, market sources said yesterday.

The University of Michigan's closely watched gauge of consumer confidence rose to 92.1 in May, its highest level in nearly a year, from April's 86.0, but slightly below economists' forecasts for a final reading of 92.6.

Consumer confidence is seen as a predictor of consumer spending, which drives two-thirds of the US economy.

Earlier the dollar shrugged off some softer-than-expected US economic reports, gaining sharply on the euro and yen on worries that some world leaders might express concern over the greenback's recent slide during this weekend's G8 summit in Evian, France.

The dollar brushed aside a report from the US commerce department that said personal spending fell by 0.1 per cent in April, and withstood the National Association of Purchasing Management index fell for a fourth straight month. - (Reuters)