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NEW YORK (Dow Jones)--The dollar gained against the euro Tuesday as concerns over euro zone sovereign debt continued to weigh on the common currency, while disappointing global data triggered fresh worry over the sustainability of an economic turnaround.
The greenback also firmed against the Canadian dollar after the Canadian central bank left key interest rates unchanged and gave no clues as to when rates would increase.
Meanwhile, a further tightening of Chinese monetary policy led some investors to worry whether a brake on Chinese economic growth would reverberate to other economies crawling their ways from recession.
Tuesday morning in New York, the euro was at $1.4273 from $1.4389 Monday afternoon. The dollar was at Y90.88 from Y90.74, while the euro was at Y129.72 from Y130.59. The U.K pound was at $1.6330 from $1.6339. The dollar was at CHF1.0346 from CHF1.0345.
The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 77.604 from 77.090 late Monday.
The dollar is gaining as investors adjust their expectations for global economic growth, determining the U.S. is likely to continue to emerge from the widespread recession at a quicker clip than the euro zone, said Andrew Wilkinson, senior market analyst at Interactive Brokers in Greenwich, Conn.
"We've shifted from a dollar supported by rising interest rate expectations to the dollar being the least ugly of the euro-dollar pair," he said. "This is not an all-out rush for the exits," of risk-positive assets, such as the euro, "this is more of a change of expectations."
If the euro sustains a break below $1.4289, it could slip all the way to $1.4218, which would be its lowest level since late December, according to Citigroup Inc. (C) technical analysts.
Expectations for global economic growth also were dented overnight with the release of disappointing data in Asia and the euro zone.
In Germany, the euro zone's largest economy, the ZEW economic expectations index fell for the fourth month in a row, to its lowest level since July. The index fell to 47.2 in January, from 50.4 in December. The index peaked in September at 57.7.
Further pressuring the euro was continued concern over the fiscal situation in Greece, which is struggling with soaring deficits and questions over its sovereign credit worthiness.
The European Union's commissioner for economic and monetary affairs, Joaquin Almunia, said that although Greece's fiscal consolidation plans are "adequate", its plans for cutting public spending consist of "ambitious targets."
Ratings agency Moody's Investors Service Inc. on Tuesday praised Greece's stability and growth program to fix deep budget deficits, but raised doubts about the government's ability to implement the plan.
"The EU and investors appear unimpressed by the Greek government's stability plans, which lack detail and in some aspects appear unachievable," said BNP Paribas (BNPQY) analysts.
Adding to the darkening global economic tone, Japanese consumers also became more pessimistic in December, according to the Cabinet Office's consumer sentiment survey. The disappointing data led the dollar to also gain slightly on the yen.
Also denting the yen were rising fears that China will move to slow its economic recovery with an increase in interest rates. Earlier Tuesday, the People's Bank of China allowed the yield on one-year bills to rise another 8 basis points, the second weekly increase in a row. Last week, the central bank also raised the minimum bank reserve requirement, another move that generally heralds tighter monetary policy.
The rise in yields comes ahead of the release of gross domestic product data that could show that China grew by over 10% in the fourth quarter of last year.
The U.K. pound gained overnight against the dollar, but has since slipped, on a stronger-than-expected rise in U.K. inflation, with the CPI rising by 2.9% in the year to December instead of by 2.6% as expected.
The rise triggered initial speculation the Bank of England could increase key interest rates sooner than expected, but Wilkinson said the BOE would not raise rates quickly based on one inflation reading.
Canada Morning
The Canadian dollar was lower Tuesday, losing further ground after the Bank of Canada left its key policy rate at 0.25% and issued a policy statement that did not give any indication rate hikes are coming soon.
The U.S. dollar was trading at C$1.0344 in morning trading from C$1.0309 just before the bank's policy statement and C$1.0258 late Monday.
The bank said the factors shaping the recovery are largely unchanged - policy support, increased confidence, improving financial conditions, global growth, and higher terms of trade.
"At the same time, the persistent strength of the Canadian dollar and the low absolute level of U.S. demand continue to act as significant drags on economic activity," it said.
The Canadian dollar received some support in earlier trading when the leading indicator rose 1.5% in December, the largest increase since February 1983.
(Don Curren in Toronto and Nicholas Hastings in London contributed to this article)
-By Bradley Davis, Dow Jones Newswires; 212-416-2654;
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