world stock markets rebounded

NEW YORK (AFP) – The dollar firmed sharply Monday after Federal Reserve chief Ben Bernanke backed the idea of a second US economic stimulus package and world stock markets rebounded.

The euro sank to 1.3343 dollars around 2100 GMT from 1.3408 dollars late Friday. On Monday it briefly touched a 10-day low under 1.33 dollars.

Against the Japanese currency, the dollar rose to 101.77 yen from 101.63 yen on Friday.

Sentiment was buoyed when Bernanke threw his support behind a second stimulus package this year to jump-start the sluggish economy, battling tight credit, falling house prices and rising unemployment.

"With the economy likely to be weak for several quarters and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate," he said in testimony before the House of Representatives budget committee.

Wall Street stocks closed in a powerful rally after the White House said it was open to considering a second stimulus for the economy, reeling from the worst credit crisis since the 1930s Great Depression.

"Such a move would raise speculation that the proactive efforts by the US over the past year leaves them in a better position compared to regions like the eurozone and UK," said Terri Belkas, currency strategist at Forex Capital Markets.

Belkas said that the Bank of England's key rate, pegged at a "relatively restrictive" 4.50 percent, was "leaving the nation likely to tip into recession."

In other dollar-friendly news, the Conference Board said its composite index of leading economic indicators in the United States, covering the coming six months, unexpectedly edged up 0.3 percent in September, the first increase in five months.

"It seems that the market is currently in some kind of transition period between developments purely driven by financial news and 'normal' market conditions, as suggested by the cautious recovery in the money markets," Commerzbank analysts said in a statement.

In late New York trade, the dollar leapt to 1.1501 Swiss francs from 1.1369 late Friday.

The pound fell to 1.7164 dollars from 1.7280