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Originally published September 8, 2009 at 5:36 AM | Page modified September 9, 2009 at 11:57 AM

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Dollar hits low for year as gold tops $1,000

The dollar fell to a low for the year Tuesday as gold prices shot above $1,000 an ounce before giving some ground and investors switched funds into riskier investments.

AP Business Writer

NEW YORK —

The dollar fell to a low for the year Tuesday as gold prices shot above $1,000 an ounce before giving some ground and investors switched funds into riskier investments.

Commitments from global leaders this weekend to continue underwriting the global recovery helped drive investors away from the "safe haven" dollar and into emerging-market currencies and equities, analysts said.

Published comments from a Chinese government official in a British newspaper knocking the Federal Reserve's policy of buying bonds also drove the dollar lower, said Joseph Trevisani, chief market analyst at FXSolutions.

"The Chinese have serious influence," he said. China is the largest holder of U.S. Treasury securities, and its buying of U.S. debt enables the government to fund its deficit spending.

The 16-nation euro rose as high as $1.4535 in afternoon trading, its highest level this year, from $1.4337 late Monday, before backtracking to $1.4490 in later trading.

The British pound rose to $1.6494 from $1.6335, while the dollar dropped to 92.27 Japanese yen from 92.96 yen.

The dollar index fell as low as 77.05 against a basket of six major world currencies that includes the euro, yen, Canadian dollar, British pound, Swedish krona and Swiss franc. That's its lowest since last September.

Markets have been rising after finance officials from the Group of 20 leading economies pledged to maintain government spending, low interest rates and expansion of the money supply in order to buck up the global economy. The ministers met this weekend in London.

Those moves could help boost economic activity and liquidity in financial markets, but can weigh on the value of a currency. The current U.S. rate near zero means investors can earn better returns on their funds in countries with higher yields, such as, for example, Poland, Turkey, Brazil and Australia.

"People are loading up on high-yielders," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York, as they get more optimistic about the global economy's growth outlook.

A report from a United Nations agency released on Monday also called for a reduced role for the dollar as the world's primary reserve currency. And in an interview published on Sunday, Cheng Siwei, a Chinese official, knocked the Fed's policy of buying bonds as an inflation trigger that will undermine the dollar.

The Federal Reserve has committed to buying up to $300 billion in longterm Treasurys to boost liquidity in financial markets and hold down interest rates.

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"Most of our foreign reserves are in U.S. bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," the Chinese official said in the interview in the U.K.'s Telegraph newspaper.

China and Russia have been vocal this year about the need to diversify reserves away from the dollar as its value dropped. Chinese officials have called for the creation of a new global reserve currency by the International Monetary Fund.

Siwei's interview and the U.N. report have "drawn attention back to the fact that we have twin deficits and low interest rates," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon in New York. That's "simply feeding into current negative dollar sentiment" as sovereign nations gradually sell their U.S. dollars.

There's an assumption that "when Chinese officials speak on this topic they are not doing it without having their remarks vetted by the Chinese government," Trevisani said. Whether that is true or not, he said, "you assume that there is some warning here."

China, the largest foreign holder of U.S. Treasury securities, trimmed its holdings, to $776.4 billion in June from $801.5 billion in May. Russia also reduced its holdings 3.7 percent to $119.9 billion in June.

The price of gold, meanwhile, shot past $1,000 an ounce for the first time since February. Gold for December delivery peaked at $1,009.40, the highest since March 2008, on the New York Mercantile Exchange before falling back to $999. Gold is often used as a hedge against inflation and a weak dollar.

Other currencies also climbed against the dollar, especially those in countries which are major exporters of commodities, as oil prices gained more than $2. A strong economy would use more commodities in factories and transportation.

The New Zealand dollar hit its strongest point since last September at 69.83 U.S. cents, while the Australian dollar peaked at 86.58 U.S. cents, its highest level in more than a year. The dollar dropped to 1.0811 Canadian dollars from 1.0763 and tumbled to 1.8250 Brazilian reals from 1.8445 reals late Monday.

In other trading, the dollar hit a low for 2009 against the Swiss franc at 1.0428 on Tuesday, down from 1.0597 late Monday. It later traded at 1.0462 Swiss francs.

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