By Sam Forgione
NEW YORK (Reuters) - The U.S. dollar gained against the euro on Tuesday after greater risk appetite hurt demand for the shared currency and new pressure from short sellers likely weighed, while the Russian ruble rose on higher oil prices.
Investors sought riskier assets such as stocks after an increase in oil prices boosted sentiment. The greater risk appetite hurt the euro, which traders view as a safer funding currency, given its low yield.
The euro fell to $1.08990, its lowest in nearly a week. The U.S. dollar index <.DXY>, which measures the greenback against a basket of six major rivals, rose to nearly a one-week high of 98.413, from a nearly two-week low early Tuesday of 97.799.
Analysts also said traders likely reinitiated short bets against the euro. While a smaller-than-expected stimulus move by the European Central Bank on Dec. 3 led many traders to repurchase euros this month after shorting the currency in prior months, expectations of multiple Federal Reserve interest rate increases next year, compared with easy monetary policy in Europe and Japan, helped fuel the greenback's gains.
"There's no doubt that the market is stepping back in and starting to increase their euro short exposures again," said Jason Leinwand, managing director at Riverside Risk Advisors in New York. "Policy divergence between the U.S. and Europe is going to be a strong driver in the first quarter."
He said that higher Treasury yields also helped the dollar gain on Tuesday. U.S. two-year yields > reached 1.103 percent, more than a 5-1/2-year high.
In their latest forecasts earlier this month, Federal Reserve policymakers implied that they expected four quarter-point rate increases next year.
The dollar slipped against the Russian ruble after hitting a more than one-year high against the currency of 72.84 rubles >. The ruble rebounded on the gains in oil prices since Russia is an exporter of the commodity. Brent crude
Quiet trading ahead of year-end limited price moves in the currency market.
"These kind of markets are very thin," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.
The euro was down 0.28 percent against the dollar at $1.09370 >. The dollar was mostly flat against the yen at 120.370 yen >.
On Wall Street, the benchmark S&P 500 stock index <.SPX> was more than 1 percent higher shortly before the close of the market.
(Editing by Jeffrey Benkoe)
