The dollar fell broadly Tuesday while stocks rose after Australia's interest rate rise, the first in a G20 economy in more than a year, boosted confidence the global economic recovery is on track and others may follow.

The dollar trimmed losses after Saudi Arabia, Russia, Japan and other policymakers denied a report that Gulf Arab states were in secret talks with Russia, China, Japan and France to replace the U.S. dollar with a basket of currencies in the trading of oil.

The Australian dollar hit a 14-month high against the U.S. currency after the country's central bank raised interest rates by a quarter point to 3.25 percent and heralded more to come.

Combined with an upbeat U.S. services sector report on Monday, investors are expecting that gradual, not sudden, unwinding of emergency monetary policy would give a vote of confidence that the global economic recovery is on track.

The big story is Australia as other countries will now seek to raise rates, in contrast to the United States where the Fed is expected to raise rates last, said Lee Hardman, currency analyst at Bank of Tokyo-Mitsubishi UFJ.

In the short term, the dollar would remain under pressure as risk sentiment was still improving and capital flows were turning toward higher growth and emerging assets, he said.

The dollar fell 0.3 percent against a basket of major currencies, and it was down half a percent at 89.10 yen. The Australian dollar rose as high as $0.8882.

The MSCI world equity index rose 1 percent while the FTSEurofirst 300 index gained 1.4 percent. Emerging stocks added 1.6 percent. U.S. stock futures gained 0.9 percent, pointing to a firmer open on Wall Street later.

A move by Societe Generale to repay 3.4 billion euros of state support and pursue acquisitions, a week after a similar decision by rival BNP Paribas, was also positive.

Societe Generale launched a 4.8 billion euro rights issue, joining a recent rush of European banks to raise new share capital to help rebuild their balance sheets and pay off costly state aid received during the credit crisis.

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Australia's move is expected to be followed by Korea, whose won currency also hit a one-year high against the U.S. currency before retreating on suspected intervention by the authorities.

The Reserve Bank of Australia, after delivering a hike, said it was safe to row back on stimulus now that the worst danger for the economy had passed. Investors are now pricing in at least one more rate rise by Christimas and rates above 4 percent in a year.

The real news is the upbeat outlook that accompanied the move, with a bullish growth forecast suggesting further hikes are more than likely. Now that the cycle of global loosening is broken, Norway will almost certainly be next at the end of the month and attention will turn to Canada and New Zealand, Royal Bank of Canada said in a note to clients.

With other cyclical countries hiking, the Bank of Canada and the Reserve Bank of New Zealand commitments to keep rates unchanged till mid/late 2010 respectively, may begin to look untenable. We see scope for the NZ dollar and Canadian dollar rallies as those hikes start to be priced in. 

The U.S. dollar fell earlier in Asia after Britain's Independent newspaper cited unidentified sources in Gulf Arab states and Chinese banking sources in Hong Kong in a report on a possible move to replace the dollar in oil trading.

U.S. crude oil rose 1.4 percent to $71.43 a barrel, helped by a weaker dollar, which pushed gold to an 18-month peak of $1,026.35 an ounce.

The December bund future fell 26 ticks.