Dollar Rises as Bernanke Says Fed May Extend Lending Into 2009

Dollar Rises as Bernanke Says Fed May Extend Lending Into 2009
By Ye Xie and Agnes Lovaszwww.bloomberg.com





July 8 (Bloomberg) -- The dollar rose against the euro for
the first time in three days as Federal Reserve Chairman Ben S.
Bernanke said the bank may extend securities dealers' access to
direct loans into 2009.

The U.S. currency erased losses that came yesterday on
concern Fannie Mae and Freddie Mac, the two largest U.S.
providers of home financing, may need to raise additional
capital. China's yuan remained higher against the dollar after
the Group of Eight nations signaled they're seeking gains in
currencies of countries with trade surpluses.

``Bernanke's comments contributed to the turnaround to the
dollar,'' said Stephen Malyon, a currency strategist at Scotia
Capital Inc. in Toronto. ``It helped alleviate some of the
concern about credit markets.''

The dollar rose 0.3 percent to $1.5678 per euro at 9:25
a.m. in New York, from $1.5726 yesterday. The yen climbed 0.3
percent to 168.13 per euro, from 168.55. It traded at 107.25 per
dollar, compared with 107.18.

China's yuan rose as much as 0.2 percent to 6.8510 per
dollar, near the strongest since a dollar link ended in July
2005, on speculation the government will allow faster gains in
the currency to help curb inflation. The G-8 leaders indicated
emerging-market countries such as China need to help stabilize
the world economy by allowing their currencies to appreciate.

G-8 Statement
``In some emerging economies with large and growing current
account surpluses, it is crucial that their effective exchange
rates move so that necessary adjustment will occur,'' the G-8
leaders said in a statement during their summit in Japan.
Central bankers aren't attending the meeting, and the statement
didn't make further mention of currency markets.

President George W. Bush told his G-8 counterparts that
maintaining a strong U.S. dollar was in the best interests of
the world's biggest economy, according to administration adviser
Dan Price.

The dollar increased against the euro today as Bernanke
said in a speech to a Federal Deposit Insurance Corp. conference
in Arlington, Virginia, that the Fed is committed to financial
stability. He said the central bank is ``considering several
options, including extending the duration of our facilities for
primary dealers beyond year-end.''

The Fed's Primary Dealer Credit Facility, which provides
direct loans, and the Term Securities Lending Facility, which
auctions as much as $200 billion in Treasuries, were created in
March in response to the credit crisis and collapse of Bear
Stearns Cos. Both programs are aimed at the 20 primary dealers
in U.S. government debt.

Bernanke `Attentive'
Bernanke said on June 3 that he's ``attentive'' to the
effect of the dollar's decline on inflation. Treasury Secretary
Henry Paulson and Bernanke are scheduled to testify before
Congress on July 10.

The dollar fell 0.1 percent yesterday against the euro as a
report from Lehman Brothers Holdings Inc. said Fannie and
Freddie may need to raise a total of $75 billion in capital.

Pending home resales in the U.S. probably fell 3 percent in
May, the biggest decline since November, according to the median
forecast of 36 economists surveyed by Bloomberg News. The
National Association of Realtors' report is due at 10 a.m. in
Washington.

To contact the reporter on this story:
Ye Xie in New York at
yxie6@bloomberg.net