Dollar declines versus euro after good euro-zone data

By Deborah Levine and William L. Watts, MarketWatch

NEW YORK (MarketWatch) -- The dollar fell versus the euro Wednesday, reversing an earlier gain on stronger-than-expected manufacturing data in France and Italy.

Data out of Asia and the U.K. kept the dollar higher versus the Japanese yen and British pound.

The euro traded at $1.3649, up from $1.3598 in late North American trading Tuesday. The single currency had been under pressure in early activity, knocked down in part by weaker-than-expected German trade data.

The dollar index /quotes/comstock/11j!i:dxy0 (DXY 81.68, +0.05, +0.06%) , which measures the U.S. unit against a trade-weighted basket of six major currencies, traded at 80.484, giving up an earlier gain and compared with 80.580 late Tuesday.

There were no major economic reports in the U.S. and benchmark stocks indexes drifted, providing little direction for foreign-exchange traders.

The greenback rose to buy 90.55 yen, up from 89.98 yen late Tuesday. Throughout the credit crisis and recession, the Japanese currency was one of the biggest beneficiaries of investor demand for a relatively safe haven from the storms in other markets. As the crisis abated and signs of economic recovery grew, the yen has fallen.

Data from Italy and France showed stronger-than-expected jumps in manufacturing output in January, which analysts said should bode well for euro-zone output figures due for release Friday. Read about factory output in Italy, France and Britain.

Separately, Germany's exports unexpectedly fell in January, according to government data. Read full story on Germany's trade data.

Analysts also paid close attention to data showing China's trade surplus narrowed last month.

China's trade surplus declined in February to $7.6 billion from $14.2 billion in January. When compared with the same month last year, both exports and imports grew at a higher-than-expected rate, reflecting growing domestic consumption in China and more demand abroad for Chinese goods, aided by a cheap yuan. Read more on China trade data.

"The Chinese currency is undervalued, and global demand is alive and kicking," said Andrew Wilkinson, senior market analyst at Interactive Brokers. "In light of this data, the Japanese yen slipped against all of its major trading partners as investors lose the argument that there is an ongoing need to maintain a stake in safe haven units."

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In currency crosses closely watched as indications of risk appetite, the euro rose 0.8% versus the yen, and the Australian dollar jumped 1.1% against the Japanese currency in recent action.

Swiss, U.K. activity

The euro, meanwhile, posted a temporary jump on the Swiss franc on rumors the Swiss National Bank intervened to sell francs versus the single currency. See full story on the speculation over Swiss intervention.

The British pound /quotes/comstock/21o!x:sgbpusd (GBPUSD 1.5608, -0.0005, -0.0320%) skidded to $1.4964 from $1.4991 on Tuesday.

The Office for National Statistics said U.K. manufacturing production fell by 0.9% in January, compared with expectations for a 0.2% monthly rise.

"The almost relentless flow of negative data surprises for the U.K. and uncertainty about the U.K. monetary and fiscal policy outlook is putting upward pressure on the pound's risk-premium," said currency strategists at Barclays Capital.

Deborah Levine is a MarketWatch reporter, based in New York. William L. Watts is a reporter for MarketWatch in London.

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