NEW YORK (Dow Jones)-- The dollar staged an afternoon surge Tuesday as investors heavily pulled back from risk and embraced the safe-harbor greenback.

"This is part of a broad dollar rally, with equities selling off, some nervousness in Treasurys going on, and an overall unsettled feeling ahead of G-20 meetings," said Andrew Busch, global foreign exchange strategist at BMO Capital Markets in Chicago.

In extremely volatile late-afternoon trading in New York, the euro, sterling and yen all hit fresh lows shortly after 3:30 p.m. EST. Commodity currencies, largely tied to global growth, also fell as investors shed risk. For example, the New Zealand dollar fell 1.5%. The Australian dollar also was down by 1%.

The dollar's rise accelerated around 3:25 p.m. EST, when 10-year Treasury note yields hit their daily high following a well-bid $24 billion auction of 10-year Treasury notes, said Sebastien Galy, currency strategist at BNP Paribas in New York.

In addition, the rally was fueled by fears that the dollar may have been driven down too far.

"People stayed in bearish dollar positions as long as they could," but some investors finally bailed on those bets because the risks were becoming too apparent, said Aroop Chatterjee, chief foreign exchange quantitative strategist at Barclays Capital in New York. He added those risks include recent Federal Reserve officials expressing skepticism over the value of a new Federal Reserve stimulus plan and better U.S. data undermining the need for it.

Late Tuesday afternoon, the euro was at $1.3772 from $1.3921 late Monday, according to EBS via CQG. The dollar was at Y81.83 from Y81.20, while the euro was at Y112.72 from Y112.99. The U.K. pound was at $1.5991 from $1.6135. The dollar was at CHF0.9677 from CHF0.9660.

The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 77.742 from 77.0035.

No major breakthroughs are expected at the two-day Group of 20 summit, which begins Thursday. But uncertainty over those meetings hung over unsettled investors, who pared their most aggressive bets, said analysts.

Meanwhile, U.S. stocks were down, with the Dow Jones Industrial Average off 60.09 points. The Treasury market was also roiled by fears that Wednesday's 30-year bond auction would go poorly, despite the day's successful 10-year auction. The 30-year is largely ignored in the Fed's $600 billion bond-buying program known as quantitative easing.

Investors originally bolted the euro Tuesday based on renewed sovereign-debt concerns and sterling based on fear of new U.K. quantitative easing.

"You look at the overall fundamental story and it's not great," regarding the euro zone, said Julia Coronado, economist at BNP Paribas in New York.

"The U.K.'s inflation report tomorrow [Wednesday] will be more dovish than what people are expecting," increasing fears of Bank of England-led QE there, said Mark McCormick, currency strategist with Brown Brothers Harriman in New York.

With the absence of significant U.S. economic data, investors also took trading cues from overseas, especially from troubled euro-zone economies.

The cost of insuring the bonds of Ireland, Spain and Portugal against default reached new all-time highs overnight.

Such default fears are unlikely to subside and could anchor the euro until the debt woes of the weaker euro-zone nations are resolved, said Raghav Subbarao, currency strategist with J.P. Morgan in London.

Beyond sovereign debt, the euro was hurt by fissures within one of the common currency's strongest nations.

Germany's Federal Statistics Office said Tuesday consumer prices edged up just 0.1% in October from September, part of a recent run of uninspiring domestic data.

-By Andrew J. Johnson, Dow Jones Newswires; 212-416-3092; andrewj.johnson@dowjones.com stocks, bonds & forex trading
source: online.wsj.com