Dollar mixed as investors mull rally in equities

NEW YORK — The dollar was mixed against major currencies Monday as investors assessed whether the sharp rally in equities over the last three months can continue through the summer.

Stocks reversed steep losses in light trading Monday as concerns linger about the global economy. Prices of commodities such as oil and gold — hedges against inflation that gain when the dollar rises — tumbled, spooking investors.

The euro fell to $1.3891 in late trading Monday from $1.3963 late Friday after the International Monetary Fund said that the timing of economic recovery in the 16 nations that share the currency was “uncertain.” Meanwhile the British pound advanced to $1.6045 from $1.5978.

The euro spiked as high as $1.4337 last week, its highest level this year, while the pound peaked at $1.6661, a nearly eight-month high.

In late April, the euro had traded under $1.30, while the pound touched below $1.45.

The dollar had slid throughout the spring as improving investor confidence fueled a rally in equities and commodities such as oil and gold. Those investments looked more appealing than cash or super-safe government bonds.

There are now worries in the market that if economic data around the world starts to disappoint expectations, then investors may have to start revising down their recent optimistic tendencies, which have helped fueled the strong stock market rally. Some of the world’s major equity indexes are now in positive territory for 2009.

Investors were also on edge ahead of the latest report card on banks. The government is expected to announce as early as Tuesday which banks will be allowed to return bailout funds to help protect against a worsening in the economy.

Meanwhile, the International Monetary Fund said Monday any economic recovery would be slow and called on European governments to stress test banks and launch a “resolute and coordinated clean up of the banking system” to restore confidence.

The euro zone fell into recession last year and is now seeing unemployment surge to the highest level in over a decade as households cut back spending and demand for high-value European exports plunges, partly on the high value of the euro against other currencies.

Also Monday, Germany’s Federal Statistical Office said the iron and steel industry in Europe’s largest economy saw production improve somewhat in May compared to April. Still, output was still well below year-ago levels as the recession cut into demand for materials and kept manufacturing orders flat.

In other trading, the dollar bought 98.40 Japanese yen, up slightly from 98.36 yen late Friday in New York. The dollar climbed to 1.0917 Swiss francs from 1.0862 francs, but slipped to 1.1183 Canadian dollars from 1.1185 late Friday.