Dollar falls as data show U.S. investors buy abroad

By Min Zeng and Ye Xie Bloomberg NewsPublished: January 18, 2007

NEW YORK: The dollar fell against the euro Wednesday after a government report showed that U.S. investors bought a record amount of foreign stocks in November.

International investors also bought fewer U.S. stocks in the month, while domestic investors doubled their purchases of foreign debt. Diminished demand for U.S. assets reduces the amount of dollars that investors require.

Losses in the dollar were limited as separate data showed gains in U.S. wholesale prices, industrial production and home builders' confidence.

"The theme of diversification away from the dollar is still a concern," said Matthew Kassel, director of proprietary trading at ING Financial Markets. "In the very short-term there is going to be less demand for the dollar."

At 4 p.m., the euro rose to $1.2936 from $1.2915 Tuesday. The dollar was unchanged against the yen at ¥120.64, and it eased to 1.2475 Swiss francs from 1.2486 francs. The pound gained to $1.9698 from $1.9613.

U.S. investors bought a net $21.2 billion of international stocks in November, Treasury Department data showed. It was the most since 1977. U.S. investors also doubled the amount of foreign bonds they bought, to a net $17.8 billion, from $7.5 billion in October.

The dollar erased its losses versus the yen after an industry report showed confidence among U.S. home builders had risen to a six-month high. The National Association of Home Builders/Wells Fargo index of sentiment rose to 35 this month from 33 in December, the Washington- based association said. A reading below 50 means most respondents view conditions as poor.

The U.S. currency received a brief lift earlier as a Federal Reserve report showed industrial production rose 0.4 percent last month, after falling 0.1 percent in November. The increase was four times the median forecast in a Bloomberg survey.

The dollar was also initially helped against the euro after a U.S. report showed producer prices in December rose more than forecast, fueling concern that inflation was still a threat.

U.S. producer prices rose 0.9 percent in December following a 2 percent jump in November, the Labor Department said. That compared with the median forecast of a 0.5 percent increase in a Bloomberg survey.

The government report added to speculation that the Fed would delay any interest rate cuts.

The yen initially fell after Japanese media reported that the Bank of Japan might refrain from an interest-rate increase Thursday. Kyodo News said the BOJ might keep borrowing costs on hold and the Nikkei newspaper reported that the board was "leaning toward" a delay. Prime Minister Shinzo Abe said this week that monetary policy should support the economy.