Dollar falls for second week as central banks spur risk appetite

By Dion Rabouin

NEW YORK (Reuters) - The dollar rose against a basket of currencies on Friday, bolstered by an increased appetite for riskier assets following unexpected action from the European and Chinese central banks.

Despite Friday's gains, the dollar index still moved lower for the second straight week with most of the losses coming after Thursday's European Central Bank meeting.

The ECB took bold easing steps that added up to far more stimulus than the market had expected, but President Mario Draghi's comment that he expected the bank might not have to cut rates further fed concerns that officials were running out of ways to weaken their currencies and raise inflation.

That resulted in the euro's biggest gain in a month and its widest trading range since Dec. 3 when the ECB cut its deposit rate by a less-than-expected 10 basis points.

The euro , which makes up the largest component of the dollar index, rose 1.4 percent against the greenback for the week. It fell 0.2 percent to $1.1155 on Friday.

The ECB's stimulus measures failed to weaken the euro, but did back European equity markets with the pan-European FTSE 300 <.FTEU3> rising 2.7 percent on Friday.

Commodities prices rose after China fixed higher its onshore yuan rate against the dollar overnight by the fastest pace this year.

A stronger Chinese currency was good news for commodity prices, which have risen broadly over the past two weeks, as it signaled a likely increase in demand from the world's top commodities consumer.

Oil rose almost 2 percent, with U.S. crude posting a fourth week of gains after the world's energy watchdog said the market may have hit bottom.

The moves by the Chinese and European central banks helped commodity-based currencies like the Canadian and Australian dollars and Norwegian crown, which each rose more than 1 percent against the dollar on Friday.

The loonie has gained 2 percent against the dollar over the past two weeks, the Aussie added more than 5 percent and the crown rose by 3 percent over the same period.

"As equities go higher and volatility is falling typically equities, commodities, commodity currencies are all rallying," said Richard Franulovich, senior currency strategist at Westpac Banking Corporation in New York, "And they're all rallying against the dollar, meaning the dollar tends to fall in that environment."

Stock markets around the world rose this week, with a gauge of global markets <.MIWD00000PUS> up 0.8 percent after a 2.7 percent increase last week.

(Reporting by Dion Rabouin; Editing by Lisa Von Ahn and Cynthia Osterman)

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