By Lisa Twaronite, William L. Watts & Nick Godt, MarketWatch SAN FRANCISCO (MarketWatch) -- The dollar advanced against major counterparts Monday as government efforts to stabilize the financial system and support from Ben Bernanke for more economic stimulus boosted appetite for U.S. assets. The dollar index , a measure of the greenback against a trade-weighted basket of six major currencies, traded at 82.989, up from 82.050 earlier Monday and 82.552 in late North American trading Friday. Bernanke said he backs a second fiscal stimulus package by Congress. See full story. "The U.S. dollar remained bid as Fed Chairman Bernanke's testimony to the House Budget Committee revealed his support for a 'targeted' fiscal stimulus plan aimed at easing credit conditions," wrote currency strategists at Brown Brothers Harriman in New York. "The suggestion is one sign that the Fed chairman is acknowledging that even more money may need to be spent by officials to help address the crisis. That won't help ease tensions in the market and those tensions are contributing to dollar strength," they said. The U.S. unit also got a lift after the Conference Board reported a 0.3% rise in its index of leading economic indicators in September. See Economic Report. On Wall Street, Bernanke's comments helped fuel a rally, with the Dow industrials and S&P 500 both gaining over 4%. See Market Snapshot. "The sheer relief that there has been no negative news this weekend has helped the stock market and high yielding currencies recover," wrote Kathy Lien, director of currency research at GFT, in a note to clients Monday. "The liquidity that central banks have pumped into the financial markets are also finally having an effect on the credit markets," she said. While global recession fears remain, the idea that the worst of money-market tensions may be in the past have contributed to a modest revival of risk appetite, analysts said. The cost of short-term dollar loans dropped more than expected Monday, a signal that money markets are slowly returning to normal after threatening to derail the global financial system earlier this month. See full story. The dollar traded at 101.91, up from 101.58 yen in North American trade late Friday. But the euro fell to 135.95 yen, down from 136.31 yen Friday. The euro also fell to $1.3340 against the dollar, from $1.3408 late Friday. The dollar's strength also hit the British pound, which recently fell 0.8% against the greenback to $1.7161. Risk aversion fading Earlier Monday, a bounce higher by Asian and European equities had left the Japanese yen under pressure as traders reversed recent moves into safe havens. Asian equities rallied overnight, with Hong Kong's Hang Seng index up more than 6% and Tokyo's Nikkei index jumping by 3.6%. See Asia Markets. Europe followed suit, with the pan-European Stoxx 600 index up more than 2%. See Europe Markets. The euro could gain more ground in the near term if tensions in money markets continue to ease and equities show further signs of stability, said strategists at BNP Paribas. The euro has to hold gains above $1.3440, however, for the outlook to remain constructive, they wrote. In recent weeks, the yen and other currencies have traded in close correlation to swings in volatile equity markets, virtually ignoring economic data releases. The yen has been the ultimate risk-aversion currency throughout the financial crisis. It's posted strong gains during periods of financial turmoil as traders shun once-popular carry trades which involves buying funds in low-yielding currencies, such as Japan's -- where the Bank of Japan's benchmark interest rate remains at 0.5% -- and using the proceeds to buy assets denominated in higher-yielding currencies. The Bank of Japan's downward revision in its economic outlook in its latest quarterly update Monday also put pressure on the yen, said strategists at Lloyds TSB.

Source