LONDON, July 29: The dollar staged a broad-based rebound on Monday as expectations of a firm opening in US stocks generated tentative optimism that the worst of the recent equity market rout could be over.

The yen was one of the biggest losers, hitting three-week lows against the dollar as news of a sharp fall in Japanese industrial output raised doubts over the strength of Japan’s recovery.

The Swiss franc also fell sharply after the Swiss National Bank followed Friday’s surprise half-point cut in interest rates with a cut in its repo rate. Dealers said calmer equity markets were also encouraging investors to unwind recent safe-haven trades.

Better equity market sentiment is encouraging some unwinding of short-dollar positions, particularly against the Swiss franc, said Rob Hayward, senior foreign exchange strategist at ABN Amro.

There is also more focus on the impact a US slowdown would have on other markets, particularly Europe and Japan.

The dollar, which was already in recovery mode after an upbeat US consumer confidence survey on Friday, added one per cent to 1.48 Swiss francs and pushed the euro further below parity at $0.9820.

US stock index futures prices were pointing to strong gains at the New York open as the market shrugged off news of accounting irregularities at another US firm, telecoms group Qwest Communications.

Data on Monday showed Japan’s industrial output fell for the first time in five months in June as exports to the United States lost momentum, raising worries that the key force behind Japan’s recovery may be waning.

News that output fell a sharper-than-expected 0.7 per cent on the month helped the dollar climb to three-week highs at 119.72 yen, up more than four yen from recent 17-month lows.

Japanese exporters are suffering both from a stronger yen and from a slump in US demand, said Paul Mackel, currency strategist at Dresdner Kleinwort Wasserstein.

In the near term, the dollar looks to have found some support even if its medium-term outlook is still weak.

Japanese officials have long argued that the yen’s recent surge against the dollar could jeopardise the country’s fragile recovery and Japan’s top financial diplomat Haruhiko Kuroda repeated an oft-rehearsed warning that a strong yen was not appropriate.

We’re back to a Japan-needs-a-weaker-yen argument. said one London-based trader.

Trading floors were also abuzz with talk that US funds were still keen to liquidate holdings of Japanese stocks and bring capital back home.

Although the benchmark Nikkei 225 average finished 0.79 percent up after dropping to five-month lows on Friday, Tokyo traders said Monday’s yen slide came from speculation of more foreign repatriation from Japanese share markets.

Dealers said consumer and business confidence surveys in both Europe and the United States this week would be closely watched for signs that recent equity market losses were spilling over into the real economy.

This week also brings key US economic data including second-quarter economic growth figures on Wednesday and July’s jobs report on Friday.

Economists expect US unemployment to remain steady at 5.9 per cent and economic growth to slow to around 2.5 per cent for the second quarter, from a robust 6.1 per cent in the first quarter.

For the past week or so everyone’s just been looking at stock markets.

This week we have a lot of data coming out and it has the potential to shift the focus a little, said Ian Gunner, head of foreign exchange research at Mellon Financial Corporation.

The dollar has been hard hit in recent weeks by stock market weakness as the United States needs to draw in more than $1 billion a day in foreign capital to offset its gaping trade deficit.—Reuters