Dollar gains trimmed by Wall Street selloff

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The dollar rose on Wednesday, riding a global equities rally that helped reassure investors along with signs that governments in China and Japan were readying fresh economic stimulus.

The stocks rally, which pivoted on Wall Street to steep losses in late trading, sapped demand for the yen and euro that had benefited after China's surprise currency devaluation last month.

The yen's losses topped 1 percent against the dollar after Japan's Nikkei soared 7.7 percent. It was the biggest single-day gain for Japan's benchmark stocks index in nearly seven years and came after Prime Minister Shinto Abe raised hopes of more fiscal stimulus by his government.

In China, the Finance Ministry said it would strengthen fiscal policy, boost infrastructure spending and speed up tax reform, helping lift Chinese shares for a second day.

Prospects for government fiscal stimulus set the stage for a 1.4 percent rally in European stocks, while Wall Street was up most of Wednesday before turning down in late trading, dominated by drops in Apple and energy shares.

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"That translated into solid gains for the U.S. dollar against safer and lower-yielding currencies like the yen and euro," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

The euro was also hurt by widening interest rate differentials between two-year U.S. Treasury yields and comparable German bunds, according to traders and strategists.

"The differential is giving the dollar some traction against the euro," said Win Thin, global head of emerging markets at Brown Brothers Harriman & Co in New York.

The dollar was last up 0.60 percent against the yen at 120.54 yen, while the euro was flat at $1.12 after falling as low as $1.1131.

The dollar index, which tracks a basket of major currencies, was flat after being ahead most of Wednesday.

Ever since China devalued its currency in early August, sending shockwaves across global markets, the dollar has mostly moved with the ebb and flow in risk appetite. That pattern favors the yen and low-yielding euro when riskier assets such as stocks and commodities are widely sold.

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Many traders said the dollar, which benefits from U.S. interest rates that are higher than those of other major economies, was likely to show limited gains or losses through next week.

U.S. Federal Reserve policymakers may announce an interest rate hike on Sept. 17. Analysts believe a rate increase would boost the greenback.