Dollar drops as Trump's latest crisis alarms investors

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The dollar index, which tracks the USA currency against a basket of six major rivals, was last at 98.118, flat on the day.

The appointment of a special counsel follows Trump's dismissal of James Comey, his Federal Bureau of Investigation director who was investigating Russia's role in the USA election. The currency, which has gained 0.6 percent this week, traded in a range of C$1.3580 to C$1.3638.

"The market's key focus right now is the political uncertainty linked to the Trump allegations, not economic fundamentals", said Toshihiko Sakai, a senior dealer at Mitsubishi UFJ Trust and Banking. The dollar index has erased its post-election gains.

The dollar index, which tracks the greenback against six major rivals, fell as low as 97.333 .DXY on Wednesday, its lowest level since Nov. 9, having given up all the gains it had made following the US presidential election in November.

This resilience came through in later trading, with most Asian markets closing less than one per cent off, save for Japan, whose Nikkei index shed 1.32 per cent.

The buck rallied after the US election, with the ICE index trading at a 14-year high on hopes the new administration would boost the country's economy and lead to higher interest rates.

Oil prices dropped after data showed an increase in USA crude inventories, stoking concerns that markets remain oversupplied despite efforts by top producers Saudi Arabia and Russian Federation to extend output cuts.

Safe-haven gold hovered near a two-week high prompted by the weaker dollar and the risk aversion gripping the broader markets. The situation seems to be similar for European Shares which are expected to lower down by 0.6 percent for GDAXI of Germany, Britain's FTSE is expected to decline by 0.2 percent and France's CAC is expected to decline by 0.4 percent.

This reversal was also evident in currency markets, with the euro climbing to its highest since November 7 - just before the US presidential election - against the dollar.

In late NY trading, the euro rose to 1.1155 dollars from 1.1094 dollars, and the British pound climbed to 1.2963 dollars from 1.2925 US dollars in the previous session.

It pulled out of a tailspin that had taken it to its lowest level in six months against other top currencies including the euro and the yen, though it remained wobbly.

NEW YORK, May 17 (Reuters) - U.S. stocks and the dollar dropped and bond prices rallied on Wednesday as investors fled risky assets amid uncertainty about U.S. President Donald Trump's ability to deliver on tax and regulatory reform.

Taking their cue from the USA, stocks from Japan to Australia are in retreat, with the MSCI Asia Pacific Index dropping 0.4 per cent as energy producers and banks lead losses.

Brent crude futures were down 46 cents, or 1 percent, from their last close at $51.19 per barrel.

Dow Jones closed down by 1.76 percent, S&P 500 down 1.80 percent, Nasdaq finished the day down by 2.56 percent. The dollar bought 112.35 yen, well down from recent peaks above 114 yen seen last week.

The greenback climbed to a 13-year high after US President Donald Trump won the election in early November, and hit 103.01 in December.

Benchmark 10-year notes were up 1 point in price to yield 2.21 percent.

A recent run of disappointing US economic data, including inflation, retail sales and housing starts has also weighed on the dollar, tempering expectations for higher interest rates.

Spot gold was at $1,260 an ounce having hit $1,263.02, its highest since May 1 the previous session.