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Dollar rises amidst global financial crisis

LONDON, September 23 – The dollar rose against the euro and yen on Tuesday as traders awaited more details on a US government plan to buy mortgage-related assets at the root of a global financial crisis, dealers said.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson were to address US Congress on Tuesday, hoping to convince lawmakers to back a government offer of 700 billion dollars to fight a global financial crisis.

Christopher Cox, head of the Securities and Exchange Commission — the US financial watchdog — was also scheduled to take part in the proceedings.

The European single currency fell to 1.4704 dollars from 1.4796 in New York late on Monday.

Against the Japanese currency, the dollar rose to 105.78 yen from 105.42 yen.

The dollar had taken a beating on Monday, suffering its worst single-day decline ever against the euro, as concerns grew that the US government rescue plan for the banking system would further burden US finances.

"The main event today is the appearance of Fed Chairman Bernanke, Treasury Secretary Paulson, and SEC Chairman Cox, before the Senate Banking Committee on the government\’s takeover of (mortgage lenders) Fannie Mae and Freddie Mac, recent credit market turmoil, and the government\’s rescue plan," said Barclays Capital foreign exchange analyst David Woo.

"We look for Chairman Bernanke and Secretary Paulson to aggressively advocate for the proposed 700 billion-dollar proposal to purchase troubled assets.

"We expect them to paint a dire picture of recent financial market developments, and to indicate that the chance of the financial market turmoil leading to a deep recession is high if the proposed legislation is not passed quickly," added Woo.

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Dealers said that some sections of the market were worried that financing the bailout may prove more difficult than expected and put pressure on the dollar, which might force the Fed to consider a rate hike to bolster the currency\’s attractiveness.

That would not sit well with expectations that US interest rates will be cut significantly to help the economy weather the financial turmoil.

Elsewhere, dealers on Tuesday reacted to news that business activity in the 15 nations sharing the euro slumped in September to the lowest level since just after the attacks on the United States in 2001, fuelling fresh recession fears.

The eurozone\’s purchasing managers\’ index (PMI), compiled by data and research group Markit, slid to 47.0 points in September from 48.2 in August, according to an initial estimate.

The drop, which brought the index to its lowest level since November 2001, fell short of an economists\’ estimate of 47.8.

In early London trading on Tuesday, the euro changed hands at 1.4704 dollars against 1.4796 late Monday, at 155.85 yen (155.97), 0.7954 pounds (0.7967) and 1.5948 Swiss francs (1.5877).

The dollar stood at 105.78 yen (105.42) and 1.0824 Swiss francs (1.0730).

The pound was at 1.8529 dollars (1.8568).

On the London Bullion Market, the price of gold climbed to 890.07 dollars an ounce from 889 dollars late Monday.

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