Greek hopes, China data undercut dollar

LOS ANGELES (MarketWatch) � The U.S. dollar weakened Monday as optimism over Greece and an upbeat Chinese manufacturing survey undercut its safe-haven appeal, while the euro rose to a six-week high versus the U.S. currency.

The ICE dollar index DXY , which measures the greenback against a basket of six other currencies, fell below the 80 mark for the first time since the start of November, pulling back to 79.909 from 80.131 late Friday.

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The fiscal cliff talks continue in Washington. Plus, November's unemployment rate is reported and the ECB meets.

The euro EURUSD traded as high as $1.3076, up from $1.3009 late Friday in North America and its strongest level versus the greenback since Oct. 22. The shared currency recently traded at $1.3054.

�Fears of both Chinese hard landing and the collapse of the euro zone are still fading and investors have money to put to work,� said Kit Juckes, currency strategist at Soci�t� G�n�rale. �The global mood, however, is entirely dependent on being able to either forget about or ignore the U.S. fiscal-cliff issue.�

A private version of China�s manufacturing purchasing-managers� index came in slightly stronger than expected in November, pointing to an expansion in activity. The result was in line with a government version of the index released over the weekend. See: China manufacturing grows, but markets worry.

But a snapshot of U.S. manufacturing activity in November was bleak, with the Institute of Supply Management�s index falling to 49.5% from 51.7% in October. A reading under 50 indicates contraction in activity among manufacturers. U.S. stocks edged lower after the report, pushing the Dow Jones Industrial Average DJIA �down 60 points to 12,965.60. Read about Monday's action in U.S. stocks.

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In Europe, Greece began its bond buyback in an effort to cut its debt load, offering to buy back as much as 10 billion euros ($13 billion) in debt.

German Chancellor Angela Merkel was quoted over the weekend as telling a German newspaper that a debt write-off could conceivably be an option for Greece if it one day returns its budget to surplus.

�Euro-based assets are reacting well to these two bits of news because they suggest that the euro-zone authorities are changing their view on how to solve this crisis from pure austerity (like we have seen for the first 2.5 years of this crisis) to debt sustainability,� wrote Kathleen Brooks, research director at Forex.com, in a note.

Traders continue to monitor negotiations over the so-called fiscal cliff. See: Geithner predicts Republicans will accept tax hike

Cr�dit Agricole strategists said Monday that the fiscal cliff is currently the top focus for the foreign-exchange market.

�Entering December, the mood of developed currency markets will be dominated by U.S. fiscal progress, or lack thereof,� they wrote.

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But with the markets already �positioned for initial U.S. fiscal disappointment,� they tipped the dollar to remain steady against the euro and to extend recent gains against the Japanese yen.

Among other currency pairs, the British pound GBPUSD traded at $1.6092, rising from $1.6022. The yen moved higher against the dollar, pausing in its recent downtrend. The dollar USDJPY slipped to �82.19 from late Friday�s �82.44. But euro EURJPY traded at �107.29 from �107.27.

Australian rate cut Tuesday?

The Australian dollar AUDUSD fetched $1.0413, compared with $1.0438 late Friday, ahead of the Australian central bank�s rate meeting on Tuesday. There are widespread expectations the Reserve Bank of Australia will cut the key interest rate to 3% from 3.25%, putting it back to the lowest level since the global financial crisis in 2009. See: Australia almost certain to cut rates Tuesday.

�The general case for easier monetary policy � to nurture stronger growth in the non-mining sectors...so that overall growth remains around trend as the mining investment boom passes its peak next year � remains intact,� said analysts at Bank of America Merrill Lynch on Monday, adding that with no monetary policy meetings set until February, the rate is likely to be cut to 3% on Tuesday.

At Brown Brothers Harriman, Marc Chandler, global head of currency strategy, told clients the Australian dollar �could, counter-intuitively rally on a standpat stance or a [25 basis points] rate cut that would still leave Australia with the highest nominal and real rates among the major economies.�

Signs of stabilization in the Chinese economy �talk of continued reserve managers� interest leaves us inclined to buy the Australian dollar on pullbacks, provided the $1.0380 area remains intact,� said Chandler.

Michael Kitchen, Asia editor for MarketWatch, contributed to this article.