Dollar climbs as markets cheer Spain's bailout

THE dollar hit its highest level in nearly four weeks yesterday, briefly breaking through parity with the US dollar, after Spain's leaders asked for up to ?100 billion ($A126 billion) in emergency funding on the weekend to prevent the country's banks collapsing.

THE dollar hit its highest level in nearly four weeks yesterday, briefly breaking through parity with the US dollar, after Spain's leaders asked for up to ?100 billion ($A126 billion) in emergency funding on the weekend to prevent the country's banks collapsing.

Strategists said the Aussie, which touched US100.09? yesterday morning its highest since May 15 would strengthen further this week as investors bought riskier assets in the wake of the decision.

"We could easily see the US dollar come under further pressure in the early part of this week," said Westpac currency strategist Jonathan Cavenagh. "The Spanish bailout may well be the 'circuit breaker' that gets the market out of the risk-averse mood that has plagued sentiment since the start of May."

Last night the Dow futures were up more than 120 points after Tokyo stocks closed 2 per cent higher, leading a broad regional rally.

The June futures contract on the S&P/ASX 200 Index was up 35 points at 4107 points, pointing to a positive start to this morning's trade.

At 5pm, the dollar was at US99.84?, up from US98.59? at the close on Friday.

City Index risk manager Chris Nelson-Smith said last week's positive local economic news including better than expected economic growth and employment figures should support the dollar in coming days.

"We've got consumer sentiment figures coming out this week and if they [are positive] and conditions in Australia look to be improving, then you might see the dollar climb higher," he said. "But a lot will depend on further news from the eurozone."

Until the weekend, the Spanish government had avoided asking for external help to rescue its banks from spiralling bad debts incurred since its property bubble burst.

Spain's Prime Minister, Mariano Rajoy, was elected seven months ago after promising to recapitalise his country's banks using only Spanish money.

But on Saturday night Australian time, Spain bowed to pressure from Brussels and asked for a multibillion-dollar bailout package.

Mr Rajoy then invited heavy criticism by jumping on a plane to Poland to watch a "Group of Debt" soccer match between Spain and Italy at the Euro 2012 soccer championship. A trending topic on Spanish Twitter yesterday was #DontComeBackRajoy.

Meanwhile, data published in China on the weekend showed inflation last month had slowed in the world's second-biggest economy, falling to a two-year low.

Producer prices had their biggest yearly decline in 30 months, down 1.4 per cent over the year.

Analysts said the data were better than expected and should dampen expectations of a hard landing in the near term, which would provide further support for the Australian dollar.

Market focus this week will be on the Westpac-Melbourne Institute Consumer Sentiment survey, to be released tomorrow, and the European Union's finance ministers summit, which starts on Thursday and leads into the Greek election on the weekend.

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