* Euro/dollar at 6-wk high, dollar index at 6-week low
* Positive U.S. corporate earnings boost risk demand
* CIT strikes last-minute rescue deal, sources say
* Risk assets overextended, may be due for a correction
(Updates prices, adds comment, changes byline)
By Steven C. Johnson
NEW YORK, July 20 (Reuters) - The dollar weakened broadly on Monday, hitting a six-week low against the euro, as strong U.S. corporate earnings prompted investors to plunge back into high-yielding currencies and other risky assets.
Reports of a last-minute rescue for ailing U.S. lender CIT Group boosted optimism, helping push the euro to $1.4249, its highest level since early June. For more, see [ID:nN206604]
An index of the dollar against six major currencies hit a
six-week low <.DXY>, while the yen fell and the Australian and
New Zealand dollars soared. Both rose last week when Goldman
Sachs
"It's a risk-preference story. With equities firmer and breaking some semi-interesting levels, the dollar has come under pressure as a result," said John McCarthy, director of foreign exchange at ING Capital Markets in New York.
Volume was lighter than usual, however, with Tokyo shuttered for a local holiday.
The euro was last up 0.9 percent at $1.4220
The euro also added 0.9 percent to 134.00 yen
Sterling rose 1.2 percent to $1.6525
SEEING IS BELIEVING
Some analysts said the euro looked overextended, especially after it failed to add to its gains following an upbeat report on U.S. leading indicators. [ID:nN20360679].
The euro and high-yielders like the Australian dollar "are having a really impressive run, which leaves them vulnerable to profit-taking if upcoming data or earnings undershoot the market's elevated expectations," said Omer Esiner, market analyst at Travelex Global Business Payments in Washington.
HSBC in a research note pointed out that stock market gains also look set to fade and say some of the current rally may be a "squeeze" of investors who expected a summer slump to follow last spring's rally.
"We're not sure that a lot more people now 'believe' the stock market will continue to rally from here," said HSBC.
But for now, investors are content to run with the pack, said Jay Meisler, principal of Global-view.com, an online forum for traders and investors.
"I get the sense there is some skepticism over this latest bout of risk appetite but it is hard to stand in the way," he said, "especially when forecasts, such as the one from Goldman Sachs today, get raised."
Goldman raised its year-end target on the Standard & Poor's 500 index <.SPX> to 1060 from 940 on Monday. [ID:nBNG20894]
Still to come this week are earnings from American Express, State Street and Bank of New York-Mellon.
Federal Reserve Chairman Ben Bernanke is expected to offer an upbeat assessment of the economy before Congress on Tuesday. Investors will listen for Fed plans to start withdrawing some of trillions of dollars spent to help the economy through the crisis.
(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu Nomiyama )