Dollar higher after ISM, Bernanke point to better economy

NEW YORK (MarketWatch) -- The U.S. dollar rose versus the euro and recovered against other major currencies after the Institute of Supply Management's survey of service businesses showed that sector of the economy contracted at a slower pace last month.


Federal Reserve Chairman Ben Bernanke added support, telling Congress that the economy is bottoming out.
The euro fell to $1.3319, down from above $1.3400 in late North American trading
DXY 84.07, -0.08, -0.1%) , a measure of the greenback against a trade-weighted basket of currencies, rose above 84.129, from 83.753 from Monday.

"Optimistic comments from Federal Reserve Chairman Ben Bernanke and a slower pace of contraction in the service sector have helped to drive the U.S. dollar higher," said Kathy Lien, director of currency research at Global Forex Trading.
The ISM's non-manufacturing index rose more than analysts expected to 43.7 in April, from 40.8 the previous month. That's the highest reading since October. Readings below 50 indicate the industry is contracting. See more on ISM report.
The economy likely to improve later this year if the banking system recovery remains on track, Bernanke said. See more on Bernanke.

The dollar bought 98.93 Japanese yen, from 98.77 yen Monday.
The dollar had been under some pressure earlier, amid reports that more banks may need to raise capital.
U.S. stock markets slid. The dollar and the Japanese yen have tended to lose ground during periods of increased risk appetite, while rallying when investors flee riskier assets amid financial turmoil and rising economic fears.
The Wall Street Journal on Monday said U.S. officials are expected to direct 10 of the 19 banks undergoing stress tests to boost their capital. See more on banks.
The release of the stress test results, expected Thursday, is "an event risk and may be constraining US dollar gains," said Marc Chandler global head of currency strategy at Brown Brothers Harriman.

The European single currency lost, retreating slightly off of a monthly high versus the dollar ahead of a meeting later this week of European Central Bank policy makers.
The statistics agency Eurostat said annual producer-price inflation fell 3.1% in March, the steepest drop in 22 years. That puts additional focus on Thursday's meeting of the European Central Bank, where policy makers are widely expected to cut the key lending rate by a quarter point to 1%.

The Australian dollar jumped to a seven-month high versus the U.S. unit and rallied sharply versus other currencies after the Reserve Bank of Australia said it would leave its policy rate unchanged at 3%, citing further signs of stabilization in the global economy. See full story.
The Aussie dollar gained 0.7% versus the U.S. unit to buy 74.49 U.S. cents in recent action.

The decision was widely expected, but analysts said strong gains by commodities and an upbeat assessment of Australia's domestic economic outlook helped fuel the rally. End of Story
Deborah Levine is a MarketWatch reporter, based in New York. William L. Watts in London contributed to this report.