More gains forecast as Aussie rises on Spain news

THE Australian 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 ($126 billion) in emergency funding on the weekend to prevent their banks from collapsing.

THE Australian 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 ($126 billion) in emergency funding on the weekend to prevent their banks from collapsing.

Analysts said the Aussie - which touched $US1.0009 yesterday, the highest since May 15 - would strengthen further this week as investors bought riskier assets following the decision.

"We could easily see the US dollar come under further pressure in the early part of this week," the Westpac currency strategist Jonathan Cavenagh said.

"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."

The Dow futures were up more than 120 points yesterday after Tokyo stocks closed 1.96 per cent higher, leading a broad regional rally.

The ASX 24's June share price index futures contract was up 35 points yesterday afternoon, at 4107, suggesting a positive start to today's trading.

At 5pm, the Aussie closed at US99.84?, up from US98.59?.

Chris Nelson-Smith, a risk manager at City Index, said last week's positive local economic news - including the better-than-expected economic growth and employment figures - should support the dollar in the 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 now, Spain has avoided asking for external help to rescue its banks from spiralling bad debts incurred since the property bubble burst.

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

But Mr Rajoy has come in for heavy criticism since Sunday - when his government agreed to the multi-billion dollar bailout package - for jumping on a plane to Poland to watch a "Group of Debt" football match between Spain and Italy at the 2012 UEFA European Football Championship.

A trending topic on Spanish Twitter yesterday was #DontComeBackRajoy.

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

Producer prices also reported their largest yearly decline in 30 months, down 1.4 per cent over the year.

However, analysts said the data was better than expected and should dampen expectations of a hard landing in the near term, providing further support for the Australian currency.

The 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 this weekend.

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