Tuesday during early deals, the dollar slumped to a 6-week low against the pound as world stocks extended gains on optimism the U.S. Treasury's plan to remove banks' toxic assets will revive economic growth, reducing the safety appeal of the US currency.

Yesterday, the Obama administration released details of its latest plan to solve the massive, debilitating banking crisis that continues to hold the financial system in its crushing grip.

Treasury Secretary Timothy Geithner said his department plans a program to help investors buy up the toxic assets through a combination of $100 billion in TARP funds and private investment.

To help unfreeze these markets, provide a mechanism for working through these problems, we're announcing a two part program, Geithner said. One piece is a financial mechanism to allow banks to sell pools of loans. One piece is a financial mechanism for investors to sell or purchase securities.

The program is designed to boost current efforts that have largely been unsuccessful in unfreezing the credit markets and promoting consumer lending.

The Treasury's response involves using up to $100 billion in funds from the $700 billion financial rescue plan passed in 2008 in addition to capital from private investors to generate an estimated $500 billion to purchase the toxic assets, a number that could double to $1 trillion over time.

Overnight, U.S. stocks closed sharply higher following the announcement of the Obama administration's plan as well as on a better-than-expected existing home sales report.

Asian stocks extended gains today, with Tokyo shares rising 3.3% and hit a 2-1/2 -month closing high. Stock prices also got support from Japanese Finance Minister Kaoru Yosano, who said today that the government would extend its ban on naked short-selling of stocks and would extend rules on company share buybacks until the end of July in view of current Japanese stock market conditions.

As financial markets have stabilized, gauges of volatility have dropped and made carry trades seem more appealing. The revival in risk-taking boosted currencies such as the Australian and New Zealand dollars. New Zealand's benchmark interest rate currently stands at 3% and Australia's at 3.25%.

The U.S. plan was the latest response to the financial crisis that has hampered bank lending and dragged the global economy into what the World Bank estimates will be the first contraction in more than six decades. The Fed and the Bank of Japan pledged on March 18 to buy government debt from banks.

Crude oil prices edged down today, coming off a more than 3 percent rise in the previous session after a rally in Wall Street and financial stocks on a U.S. plan to buy up distressed assets to tidy up bank balance sheets.

U.S. light crude for May delivery fell 18 cents to $53.62 a barrel at 1:47 am ET. London Brent crude was down 27 cents at $53.20.

In early trading on Tuesday, the dollar fell to a 6-week low of 1.4738 against the pound. If the dollar weakens further, it may likely target the 1.499 level. At yesterday's close, the pound-dollar pair was quoted at 1.4573.

The dollar surged up to a 26-1/2 -year high of 1.3507 against the pound on January 23. Although the dollar lost 10% thereafter, it bounced back after hitting a 1-month low of 1.4987 on February 09 and reached a 6-week high of 1.3659 on March 11. Since then, the dollar has been weakening and dropped 3% last week after a surprise announcement by the Federal Reserve that it would buy a large amount of long-dated Treasuries.

The announcement raised concerns that the policy could lead to an oversupply of the world's main reserve currency, and sent the dollar tumbling to its biggest weekly slide against the basket of currencies.

A push by the world's leading emerging economies to dislodge the dollar as the dominant global reserve currency appears to be gaining momentum even as a weakening greenback adds further urgency to the discussion.

In a sign of growing debate over the dollar's status as the dominant global reserve currency, Chinese central bank chief Zhou Xiaochuan said yesterday that Special Drawing Rights allocated by the International Monetary Fund could be used as a super- sovereign reserve currency, eventually displacing the dollar.

His comments came a week after Russia said it would put forward a proposal for the creation of a new reserve currency issued by international financial institutions at the G20 meeting in April.

During early European deals on Tuesday, the dollar reversed the losses it incurred in Asian trading against the currencies of Europe and Switzerland. Currently, the dollar is worth 1.1265 against the franc and 1.3605 against the euro, up from early lows of 1.1212 and 1.3679, respectively. If the dollar advances further, it may likely target 1.352 against the euro and 1.130 against the franc. The euro-dollar pair closed yesterday's trading at 1.3637 and the dollar-franc pair at 1.1248.

Meanwhile, the dollar strengthened against the yen today, climbing to a 6-day high of 98.53. The next upside target for the dollar-yen pair is seen around the 99 level. The pair was worth 96.98 at yesterday's close.

The board members of the Bank of Japan suggested that the Japanese economy may begin to recover from the current recession in the second half of this year at the earliest, minutes from the February 18 and 19 monetary policy meeting revealed today.

The members also said that they might need to cut their view of Japan's long-term growth - especially since there was more demand than expected for BoJ funds. The board also said that an exit strategy was needed for the series of economic stimulus measures.

The dollar jumped to a 4-month high of 99.69 against the yen on March 05. Although the dollar-yen pair eased thereafter, it bounced between 99.20 and 96.60 until the dollar was sold off massively on March 18 after the Fed surprised investors by announcing it would buy $300 billion worth of U.S. Treasuries for the first time since the early 1960s as part of a move to inject an additional $1 trillion into the U.S. economy by also purchasing more U.S. mortgage and agency debt.

The dollar tumbled to a 24-day low of 93.56 against the yen last Thursday. Since then, the dollar-yen pair has appreciated 5%.

The Euro-zone January current account, UK February CPI and the manufacturing PMI reports from the major European economies are expected to influence trading in the upcoming hours.

Across the Atlantic, today will be a busy day including a testimony on AIG by the Federal Reserve Chairman Ben Bernanke and U.S. Treasury Secretary Timothy Geithner at the U.S. House Financial Services Committee.

AIG has come under severe attack for awarding multimillion-dollar bonuses to executives following a $180 billion bailout from the U.S. government.

Markets will also receive information on the Richmond region manufacturing sector. The Richmond Fed manufacturing index is expected to remain unchanged at -51 in March.

The Federal Housing Finance Agency will also release its house price index for January. House prices are expected to fall 0.9% against a 0.1% increase in December.

In the afternoon, James Bullard, President of the Federal Reserve Bank of St. Louis, will speak in London.

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