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Dollar hit by risk appetite

NEW YORK, July 16 – The dollar trended mainly lower Thursday against the other main currencies as markets reacted to a report showing foreign investors moving away from US Treasury securities.

A further boost in risk appetite that helped other financial markets also hurt the greenback, but this was muted by the prospect of a potentially disruptive bankruptcy in the US finance sector.

At 2100 GMT, the euro was trading up at 1.4150 dollars from 1.4106 dollars in New York late on Wednesday.

The dollar meanwhile eased to 93.83 yen from 94.21 yen Wednesday.

Hurting the dollar was the release of US data showing net capital flows to long-term US securities showed a negative balance of 19.8 billion dollars in May despite a jump in investments from China.

The outflows fanned fears that central banks around the world would move away from dollar-based assets such as Treasury bonds, a move that could reduce demand for the US currency.

"Threats of reserve diversification by China and Russia have put this issue squarely on the radar for the past year," said Michael Woolfolk at Bank of New York Mellon.

"However, the surprise is not that foreigners have begun selling US Treasuries. Rather, the surprise is who is doing the selling. Despite its threats to the contrary, China continues to be a net buyer of US Treasuries."

Woolfolk said Russia and Brazil have been selling US assets.

With currency markets sensitive to signs of economic turmoil, a brighter outlook this week has hurt the dollar, encouraging investors to take more risks.

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But on Thursday, the outlook was muddled after a stronger-than-expected earnings report from US banking giant JPMorgan Chase was offset by fears about a collapse of major business lender CIT Group.

"The lack of unambiguously good news is making traders nervous and giving them a good reason to take profits on short dollar positions," said Kathy Lien at Global Forex Trading.

"The pending CIT bankruptcy is providing some headwinds to this morning\’s optimism," added Jordan Eburne at PNC Bank.

The market was also mulling news that China\’s economy grew 7.9 percent in the second quarter of 2009, in a dramatic turnaround for the Asian powerhouse fueled by a massive stimulus package.

While the figures were roughly in line with analysts\’ forecasts, some market players had apparently been betting on an even stronger performance, dealers said.

In late New York trade, the dollar stood at 1.0724 Swiss francs from 1.0734 Wednesday.

The pound was at 1.6438 dollars after 1.6421 dollars.

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