By Deborah Levine & William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- The U.S. dollar gained ground versus the euro and other currencies as equity markets weakened around the world, signaling a retreat in appetite for risk among investors.
The action reverses a plunge by the greenback following a speech from Federal Reserve Chairman Ben Bernanke that prompted a big rally in riskier assets.
The dollar took little notice from a mix of data showing lower inflation pressures from wholesalers, smaller gains in factory output and an improvement in foreign capital inflows to the U.S.
"The U.S. dollar outperformed as traders took risk trades off in reaction to Bernanke's economic assessment," said T.J. Marta, chief market strategist at Marta on the Markets.
The European single currency bought $1.4871, down from $1.4972 in North American trade late Monday and unable to extend a push above the psychologically important $1.50 level.
The euro made its latest foray above $1.50 in late trade Monday, effectively shrugging off reassurances by Bernanke that the central bank was attentive to the implications of "changes in the value of the dollar." Read more about Bernanke's speech.
Those remarks sent the dollar index, a measure of the greenback against a basket of major rivals, falling to a 15-month low on Monday.
The index (DXY 75.28, +0.45, +0.60%) recovered some of that on Tuesday, recently trading up to 75.338 from 74.908 on Monday.
Gains by equities and commodities have tended to provide support for the euro and commodity-oriented currencies versus the dollar as investors show increased appetite for risk. The dollar, conversely, has rallied when risk appetite wanes.
Asian and European stocks were weaker and U.S. stocks were under pressure in early action.
The dollar rose slightly versus the Japanese currency to trade at 89.32 yen, up from 89.06 yen in late North American trading Monday.
The U.S. dollar added to gains versus the euro after a report showed industrial output rose less than expected by in October. Capacity utilization -- a gauge of slack in the economy -- rose to 70.7% last month from 70.5% in September. See more on industrial production.
The dollar took little direction from a Treasury Department report showing net foreign purchases of long-term U.S. securities increased to $40.7 billion in September from $34.2 billion in August.
The report showed foreign investors are not scared by the weak dollar, said Kathy Lien, director of currency research at Global Forex Trading.
"The demand for long term over short term securities suggests that investors have grown more confident in the U.S. recovery and the financial markets," she wrote in a note.
The dollar had little reaction also to an earlier government report showing U.S. producer prices rose 0.3% in October, less than forecast, while prices excluding food and energy unexpectedly dropped by the most in three years. See story on producer prices.
