FOREX-U.S. dollar slides as ECB revives rate hike talk

Wed Aug 27, 2008 9:07pm BST
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* Euro rebounds from 6-month lows versus dollar

* ECB's Weber boosts euro with hawkish rhetoric

* U.S. durable goods report better than expected (Recasts, updates prices, adds comment, changes byline)

By Gertrude Chavez-Dreyfuss

NEW YORK, Aug 27 (Reuters) - The U.S. dollar tumbled from six-month peaks against the euro on Wednesday, as comments by a European Central bank official rekindled speculation about an interest rate increase in the euro zone to quell persistent inflation pressure.

Investors also remained wary of nagging troubles in the U.S. financial system as mortgage finance companies Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) moved back into the spotlight, leaving the dollar vulnerable in the near term.

The dollar also fell against a basket of six major currencies, retreating from this year's highs.

Comments on Wednesday by ECB Executive Board member Axel Weber, widely considered one of the most influential ECB policy-makers, fueled the dollar's freefall. Weber told Bloomberg News that any talk about lower interest rates in the euro zone was premature.

He also gave the impression that if the euro zone economy improves toward the end of the year, there might even be scope for tightening.  Continued...

 
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