Dollar slips, euro up on manufacturing data

NEW YORK (MarketWatch) � The U.S. dollar fell on Wednesday after stronger-than-expected economic data in China, the euro zone and Britain sparked investor appetite for the euro and other riskier assets, like stocks.

Also, yields on Spanish and Italian bond fell notably during the session, offering some relief about Europe�s sovereign debt crisis.

The ICE dollar index DXY , which tracks the U.S. unit�s performance against six currencies, fell to 78.925 from 79.278 late Tuesday in North America.

The euro EURUSD �rose to $1.3159, briefly topping the $1.32 level and up from $1.3048 Tuesday.

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China and the U.K. posted some better than expected manufacturing data and there are hints that a fragile looking recovery is under way. But is this too reliant on stimulus from central banks?

Yields on Spain�s 10-year notes ES:10YR_ESP �fell to 4.58% from 4.71% Tuesday. They topped 6% late last year.

Italy�s 10-year yield IT:10YR_ITA �declined to 5.64% from 5.86% in the prior session and over 7% at the highs late last year. Yields on 2-year notes for both countries also declined more dramatically.

Both countries, some of the European Union�s largest economies, have been under the spotlight recently, with investors worried their debt problems may lead them to need financial aid from the euro zone. Greece, Portugal and Ireland have already accepted bailouts and are at varying stages of resolving their own debt issues. See blog on Italy, Spain bond returns.

Media reports said Greece is very near a deal with its creditors needed to avoid defaulting, but negotiators on both sides have made similar comments numerous times in recent weeks.

�Markets continue to take favorably recent developments on the EU periphery, notably progress on Greece,� said David Watt, senior currency strategist at RBC Capital Markets.

He also notes reports that a spokesman from the Institute for International Finance, which is negotiating on the behalf of private creditors, expects a deal with Greece on a debt restructuring �in the days ahead.�

That may be �disappointing any who potentially anticipated a deal overnight,� Watt said.

Starting during Asian trading hours, stronger-than-expected manufacturing activity around the world triggered a rally in equities, reducing interest in the relative safety of the U.S dollar and Treasury bonds. See Treasury bond story.

The euro erased losses on short covering versus the dollar after failing to takeout support at $1.30, said Boris Schlossberg, director of currency research at GFT, in emailed comments. January euro-zone manufacturing PMI data

The dollar stayed down as U.S. stocks shrugged off a slightly-weak report on U.S. private payroll growth in January, from ADP. The more important, broader government labor report for January will be released on Friday. Read about ADP jobs data.

�The market focus is on Friday�s U.S. non-farm payrolls, which is expected to deliver another solid number and contribute to a further improvement in the U.S. outlook,� said Michael Woolfolk, senior currency strategist at Bank of New York Mellon.