FOREX-Dollar climbs as risk appetite improves slightly

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By Naomi Tajitsu

LONDON, May 12 (Reuters) - The dollar rose on Monday, closing in on a two-month high against a basket of currencies as a slight rise in risk appetite and growing speculation that cuts to U.S. interest rates may soon end boosted the U.S. currency.

Weak economic data suggesting that Australia and New Zealand may be heading for rate cuts pushed down the high-yielding currencies of both countries, as lower rates would trim their rate advantage against other currencies including the dollar.

Market liquidity was thin however, with many European markets closed for holidays, and analysts said that this may aggravate currency moves.

News that a major earthquake had shaken parts of China had limited initial impact on the currency market as investors awaited more news of damage. Click on [nSP239734]

The dollar has climbed in recent weeks on brewing speculation that the Federal Reserve may be nearing the end of its rate-cutting cycle, having slashed them by a total of 3.25 percentage points since September to 2 percent.

Yet analysts said that while risk appetite has picked up, many investors remain cautious about the health of the global economy and financial systems, which may cap additional gains in the U.S. currency, at least in the near term.

"We might see some consolidation in the dollar, the market's a bit jittery about credit problems and concerns for a slowdown," said Geoffrey Yu, currency strategist at UBS in Zurich.  Continued...