Dollar up on hopes for US economy

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The US dollar has strengthened amid hopes the world's biggest economy may avoid a recession.

The dollar rose to 111.20 yen before falling back to 110.95 yen, while the euro dipped to a three-week low against the dollar of $1.4605.

In recent months, the dollar has been hit by the mortgage lending crisis and growing fears of a recession.

But better-than-expected productivity data and an imminent mortgage aid plan have eased some of these concerns.

Soft landing?

The US central bank meets next week and is widely expected to cut interest rates by a quarter of a percentage point to 4.25%, a move which could prompt selling of the dollar as investors put their cash into higher-yielding assets.

But data released late on Wednesday showed that worker productivity was at its highest in four years. Some analysts now expect that jobs data on Friday - a key figure for Federal Reserve watchers - may not be as bad as expected.

"There are expectations that the US economy will be able to ease itself into a soft landing," said Yang Jeung Won at Samsung Investment Trust Management.

The prospect of a mortgage aid plan - due to be announced later by President Bush could stop "poor people from becoming homeless, halt the drop in property prices and help prop up spending," he added.

"The market is relieved that the US is looking at a raft of alternatives to solving these problems," said Michael Birch at Wallace Funds Management.

"The policy makers are trying to do enough so that the economy will have a soft landing."

Separately, the Bank of England is due to make a decision on interest rates later.

Analyst opinion is mixed on the likelihood of a UK interest rate cut, which could make the dollar more attractive to investors. Some think inflation fears may outweigh concerns about the economy and prompt the bank to keep rates unchanged.

The European Central Bank is also set to consider monetary policy later but is expected to keep interest rates on hold.