NEW YORK: The US dollar rose on Tuesday against the euro and yen as investors locked in profits after pushing the single European currency higher following a US central bank decision to pump more than a trillion dollars into the financial system.
At 19H00 GMT, the euro fetched 1.3516 dollars in New York from 1.3617 at the end of trading on Monday.
The dollar rose to 97.86 yen from 97.13 the previous day.
"The greenback is finally finding some bids on Tuesday following the latest sharp broad-based sell-off with all major currencies giving back gains on profit-taking and ongoing concerns over the stability of the global financial system," said Joel Kruger of Forex Capital Markets.
The market sold the dollar after the US Federal Reserve announced last week that it would buy up to 300 billion dollars in long-term US Treasury bonds over the next six months and boost its purchases of mortgage securities by 750 billion dollars in an effort to revive the ailing economy.
The decision made US assets less attractive to investors, dealers said.
"The dollar rallied in the North American session," analysts at Brown Brothers Harriman said on Tuesday.
"The main driving force seemed to be the disappointment and frustration of short-term speculators who had bought the dollar following last week's decision by the Federal Reserve to dramatically increase its balance sheet, expecting a sharper sell-off on grounds that the US was purposely debasing its currency," the analysts wrote.
They said the key source of the dollar's strength appeared to be short-covering.
A US government-private sector plan unveiled on Monday to buy up soured loans and mortgage-related securities held by the banks also gave a boost to the dollar, dealers said
The euro eased on Tuesday even though data showed business activity in the 16 countries sharing the single currency had picked up slightly in March.
The eurozone's purchasing managers index (PMI), compiled by data and research group Markit, rose to 37.6 points from 36.2 points in February, according to first estimates.
"The euro (against the dollar is) in consolidation mode and generally trading above 1.35, though the downside now seems to be a bit more exposed," analysts at Scotia Capital said.
Elsewhere on Tuesday, traders digested news that China was calling for a new global reserve currency to replace the US dollar.
The US Federal Reserve and Treasury chiefs both defended the dollar's role as a reserve currency.
People's Bank of China Governor Zhou Xiaochuan said on Monday he wants to replace the dollar, installed as the reserve currency after World War II, with a different standard run by the International Monetary Fund (IMF).
China, the top holder of US Treasury bonds with 739.6 billion dollars as of January, according to American figures, two weeks ago expressed concern over its investment as the world's largest economy battles a deep recession.
"The currency impact was immediate as the Chinese yuan dramatically strengthened in offshore trading," said Andrew Busch of BMO Capital Markets.
"As the world's largest holder of US dollars as a reserve currency and US Treasury securities, China appears to be growing more and more assertive over its rights," he said.
The Chinese yuan closed the day at 6.8296 against the US dollar, up from Monday's finish of 6.8331.
In late New York trade, the dollar stood at 1.1269 Swiss francs from 1.1253 on Monday.
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