Dollar rises on Greenspan prediction

EUROPEAN government bond yields surged and the dollar rose to an 11-week high against the euro after Federal Reserve chairman Alan Greenspan said US economic growth is poised to accelerate.

Greenspan said low overnight interest rates would be enough to revive the economy and that it was unlikely the Fed would take "unconventional' steps such as buying Treasuries to cut borrowing costs. The speech surprised some investors, because it came three weeks after the Fed cut its benchmark interest rate to 1%, the lowest since 1958, citing a risk of deflation. "Bond investors around the world will feel betrayed by Greenspan," said Michael Derks, London-based chief global strategist at Commonwealth Bank of Australia. "He seems to have done a Damascene conversion to the growth story he has completely changed course in a short space of time." The German 3/4% bund due July 2013 had its biggest two-day rise in yield since June 1995 before paring losses. The price slid 0.28, or 2.8 per 1,000 ($1,130) face amount, to 97.54 at 11.07am in London. Earlier, its yield rose as much as 10 basis points after gaining 13 basis points yesterday.

The dollar advanced to $1.1138 against the euro, its highest footing since April 30. It also strengthened versus the yen.