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April 3, 2007 > Dollar drops against major currencies

Dollar drops against major currencies

By Jackie Farwell

NEW YORK (AP), Mar 30 _ The dollar weakened against other major currencies Friday after news of U.S. economic sanctions against China wiped out earlier gains.

The euro held steady at Wednesday's quote of $1.3335, while the British pound rose to $1.9676 in late New York trading from $1.9619.

The yen fell to 117.81 from 117.99 in Japan.

Strong U.S. government data on personal income and spending propped up the dollar earlier in the day, and a jaw-dropping manufacturing report out of Chicago further boosted the U.S. currency.

The early gains, however, were lost as investors digested news that the Bush administration would impose sanctions against Chinese paper imports, said Michael Woolfolk, senior currency strategist at the Bank of New York.

Investors worried that the sanctions signaled a broader protective stance that could result in the U.S. pressuring China to revalue its currency, he said.

Some lawmakers insist the Chinese are keeping the yuan artificially weak in order to perpetuate the trade imbalance, which could prompt Congress to impose tariffs across the board.

``The risk is that it tips off a much wider conflict,'' he said.

A trade war could push the already teetering U.S. economy toward a recession, Woolfolk added. Slower growth could prompt the Federal Reserve to lower interest rates, which would detract from the dollar by decreasing returns on certain investments.

The dollar made up some lost ground later in the day as investors learned the sanctions stemmed from a case brought by a single Ohio-based paper company, NewPage Corp., Woolfolk said.

The Commerce Department reported Friday that both consumer spending, bolstered by strong income gains, and consumer income rose 0.6 percent last month, doubling expectations.

Core inflation rose in February at the fastest rate since August, the government reported.

In Chicago, a key measure of manufacturing activity rebounded sharply in March to reach its highest level in two years, marking the largest one-month movement in the history of the index.

The National Association of Purchasing Management-Chicago said its index of manufacturing activity for northern Illinois and northwestern Indiana rose to 61.7 in March from 47.9 in February.

In other trading, the dollar bought 1.2152 Swiss francs, down from 1.2171 late Thursday, and 1.1532 Canadian dollars, dropping from 1.1589.

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