FOREX-US dollar index climbs to 12 month high

* U.S. dollar index touches fresh one-year
* Euro drops to nearly 12-month low versus dollar
* Dollar recovery theme continues to dominate
* Forex market ignores Lehman results

By Gertrude Chavez-Dreyfuss
NEW YORK, Sept 10 - The U.S. dollar climbed to a fresh one-year high against major currencies on Wednesday and surged to nearly 12-month highs versus the euro, as falling oil prices and a bounce in U.S. stocks overcame worries about the health of financial firms.

The dollar largely shrugged off news that Lehman Brothers the fourth-largest U.S. investment bank, incurred a third-quarter loss and failed to announce firm deals to raise needed capital.

With several banks saying in the last two days that they are still doing business with Lehman, analysts said problems at the troubled institution should not exacerbate the global credit crisis.

The dollar is also benefitting from the belief that the U.S. economy may be more resilient than most economies at a time of heightened financial stress.
"I think with all that has been happening in the U.S. financial sector, the dollar has been getting safe-haven bids," said Nick Bennenbroek, head of FX strategy, at Wells Fargo in New York. "The story on the dollar hasn't changed. It has been on a tear for the last several weeks now."

The dollar saw its largest one month rise in more than a decade in August.
Those gains came as the euro tumbled to a nearly 12-month trough of $1.3995 on the view that economic growth in the euro area could slow more sharply than previously anticipated.

REPATRIATION FLOWS BOOST DOLLAR
U.S. investors were liquidating their positions in overseas equity and bond markets, repatriating the money back home and lending support to the dollar, analysts said.

U.S. mutual fund flows data has shown persistent selling of foreign equity over the last two months, according to Goldman Sachs. Since July, the investment bank said this data has indicated selling of foreign equity totalling $18 billion.
While this number is not significant by itself, Goldman said in a research note that this number is a reflection of broader trends within the U.S. investment community.
Morgan Stanley in a note echoed Goldman's sentiment.

"The dollar has been a major beneficiary of the de-risking process, as U.S. investors, perhaps the most active cross-border investors, bring capital home," said Sophia Drossos, a currency strategist at Morgan Stanley.

Further pressuring the euro was a move by the European Commission on Wednesday to lower its 2008 euro zone growth forecast to 1.3 percent from 1.7 percent. It reduced its growth estimates for Britain to 1.1 percent from 1.7 percent.

Analysts though said that despite the poor growth outlook, it was unlikely that the European Central Bank would cut interest rates anytime soon even as the Federal Reserve's aggressive easing put the U.S. economy on a recovery path.