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By Matthew Brown and Yasuhiko Seki

July 28 (Bloomberg) — The dollar fell to the lowest level this year against the currencies of six major U.S. trading partners as speculation the global economy is emerging from the recession reduced demand for a refuge.

The Australian dollar advanced to the highest level since September against the U.S. currency after the Reserve Bank said the economy may rebound faster than forecast six months ago. The euro climbed to a seven-week high against the dollar after Deutsche Bank AG said second-quarter profit rose 68 percent, beating analysts’ estimates.

“Riskier currencies are trying to break higher,” said Ian Stannard, a foreign-exchange strategist in London at BNP Paribas SA, France’s largest bank. “Upside potential is limited as euro-dollar has been quite disappointing in recent weeks, given that we’ve had near-perfect conditions for a rally to develop.”

The Dollar Index, which the ICE uses to track the dollar against currencies including the yen, pound and Swedish krona, fell as much as 0.4 percent to 78.315, the lowest level since Dec. 18, and was at 78.509 at 7:30 a.m. in New York, compared with 78.626 yesterday. The euro advanced 0.2 percent to $1.4256 per euro, from $1.4232. The 16-nation currency traded in a range of $1.3833 to today’s high of $1.4304 in July.

Gains for the euro may be limited after the European currency met resistance at about $1.4300 today, according to Jane Foley, research director in London at, an online currency trader. Resistance is a level where orders to sell the euro are clustered.

‘Softer Tone’

“So far the euro has failed to hold above this level with the slightly softer tone of stock markets in Europe draining some of the enthusiasm for risk and pushing euro-dollar back down,” Foley wrote in a research report today.

Europe’s Dow Jones Stoxx 600 Index was little changed after better-than-estimated earnings offset a forecast by BP Plc Chief Executive Officer Tony Hayward that any recovery from the first global recession since World War II will be “long and drawn out.” Standard & Poor’s 500 Index futures decreased 0.4 percent.

U.S. home prices probably fell at a slower pace in May, indicating the U.S. economy is recovering. The S&P/Case Shiller index of 20 major metropolitan areas, due for release today, will show property values fell 17.9 percent in May from a year earlier, according to the median forecast of 32 economists surveyed by Bloomberg News. The measure was down 18.1 percent in the 12 months ended in April.

Australian Dollar

The Australian dollar climbed versus the greenback and yen after Reserve Bank Governor Glenn Stevens said it appears “that the downturn we are having may turn out not to be one of the more serious ones of the postwar era, in contrast to the experiences of so many other countries.”

Stevens left the benchmark lending rate at 3 percent on July 7 for a third month amid signs the lowest borrowing costs in half a century and government spending helped the nation skirt a recession. The target lending rate is 0.1 percent in Japan and as low as zero in the U.S.

The Australian dollar added 1.1 percent to 83.17 U.S. cents and increased 0.6 percent to 78.77 yen, while the New Zealand dollar appreciated 0.9 percent to 66.28 U.S. cents and 0.3 percent to 62.65 yen.

A pickup in the 25-day rolling correlation between Aussie- dollar and the two-year swap rate differential “suggests further Australian dollar gains,” Steven Pearson, head of Group of 10 foreign-exchange strategy in London, wrote in a research report today.

‘Jammed On’

“With the risk appetite switch jammed on pressure on the dollar and the yen continues to mount,” Pearson wrote.

The euro gained for a fourth day against the yen after Deutsche Bank, Germany’s largest lender, said in a statement net income rose to 1.09 billion euros ($1.55 billion), from 649 million euros a year earlier. The median estimate of 13 analysts surveyed by Bloomberg was for 944 millions euros.

“The bank’s results were better than expected,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “The latest upmove in the euro could be due to this.”

Deutsche Bank’s Chief Executive Officer Josef Ackermann said the banking industry and financial markets stabilized in the quarter, propelling a fourfold gain in income from debt sales and an improvement in equity trading.

The U.S. currency fell 0.5 percent to 94.73 yen, extending its drop this month to 1.7 percent.

Japanese exporters are taking advantage of the currency’s drop in the past week to repatriate earnings from overseas assets before the month-end.

‘Buy the Yen’

“Exporters are prone to buy the yen, given that the end of the month is near,” said Yuji Saito, head of the foreign- exchange group in Tokyo at Societe Generale, France’s third- largest bank.

Japanese companies forecast the yen would average 94.85 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released July 1.

Adding to pressure on the dollar, China’s Assistant Finance Minister Zhu Guangyao said on the first day of bilateral talks with U.S. officials that his government remains “concerned” about the value of its U.S. assets.

Zhu’s remarks come after repeated public assurances by Treasury Secretary Timothy Geithner that the U.S. is committed to reining in a record budget deficit once an economic recovery is secured. China is the biggest foreign investor in U.S. government debt, and any decline in demand could push up borrowing costs.

“China has massive holdings of Treasuries, so it is obviously worried,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “Any diversification away from the dollar could be gradual, and the greenback may weaken a bit.”

To contact the reporters on this story: Matthew Brown in London at mbrown[email protected]; Yasuhiko Seki in Tokyo at [email protected]

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