Dollar gains as political turmoil hits euro zone

NEW YORK (MarketWatch) � The U.S. dollar gained against the euro and most other major currencies on Monday as nervousness over France�s presidential election and political turmoil in the Netherlands undermined faith that the euro zone�s political leaders will be able to keep the region�s sovereign-debt crisis under control.

A weak round of Chinese and European economic data also sent investors toward assets considered safe havens.

The euro EURUSD fell to $1.3149, down from $1.3219 in late trading North American trading Friday.

The ICE dollar index DXY , which measures the greenback against a basket of six currencies, rose to 79.406 from 79.140 Friday.

Click to Play Strong yen pressures Bank of Japan

The Bank of Japan meets Friday amid questions whether it will ramp up efforts to bolster the country's economy and tamp down the yen. The dollar is up 5.4% this year versus Japan�s currency.

European equities fell sharply and U.S. stock index futures pointed to a lower open after Markit purchasing managers� indexes for the euro zone pointed to an accelerating contraction in business activity this month. See more on euro-zone PMI data.

U.S. stocks opened lower, also increasing the appeal of safer havens, including Treasury bonds and the greenback. The S&P 500 Index SPX �declined about 0.9% in afternoon trading. Read more on bonds.

Political turmoil was in the spotlight as Dutch Prime Minister Mark Rutte�s government resigned following the collapse of budget talks over the weekend. Yields on Dutch government bonds jumped amid growing worries that the country�s AAA credit rating could be lost. The potential for a new government following elections also raised fears that Germany could soon be deprived of a key partner in its push to overhaul the euro-zone budget process, analysts said. Read about euro-zone politics, PMI.

In the Netherlands, �polls over the weekend suggest new elections would not produce a feasible working coalition, pointing to further deadlock ahead,� said Marc Chandler, global head of currency strategist at Brown Brothers Harriman.

New elections may not be held until September, and opposition to further austerity measures raises question about whether the country will vote in favor of a tighter fiscal union for the euro zone �despite being part of the core and a leading proponent of fiscal responsibility,� Chandler added.

At the same time, French President Nicolas Sarkozy � a key architect alongside German Chancellor Angela Merkel in crafting the euro-zone response to the region�s debt crisis � faces an uphill battle to remain in office after placing second to Socialist challenger Fran�ois Hollande in Sunday�s first-round presidential vote. The contest also saw a surprising third-place finish by anti-immigrant, anti-euro National Front leader Marine Le Pen.

IMF, China, Japan

Weekend news that the International Monetary Fund secured an additional $430 billion in pledges to help fight crises had little impact, strategists said, coming in near levels touted by IMF chief Christine Lagarde last week.

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�Investor attention is currently more focused on whether additional euro-zone countries will need external financing and whether the euro zone�s own rescue facilities have the means to offer it,� said Chris Walker, strategist at UBS, in a note to clients.

HSBC�s preliminary �flash� purchasing managers� index for China rose to a two-month high of 49.1, but remained below the 50 level, signaling activity continued to contract. Read about China PMI data.

Still, treaders� heavy leanings against the euro already may limit any downside as they reverse positions.

�The market may attempt to push the euro through $1.30 but short positions and a lack of a sufficient trigger may see them frustrated again,� analysts at Societe Generale wrote in a note.

The British pound GBPUSD erased losses to trade at $1.6127, compared with $1.6123 on Friday.

Against the Japanese yen, the dollar USDJPY bought �81.14, down from �81.53 yen in late trading Friday. The yen also tends to benefit when traders seek safe havens.

The euro EURJPY �fell 1% versus the yen to �106.68.

Lower U.S. Treasury yields also reduce the appeal of swapping yen for dollars, outweighing expectations of what Japanese central bankers will do when they meet Friday. Read about falling U.S. Treasury yields.

The Bank of Japan �is largely expected to take additional steps to ease further at its meeting on Friday and the extent of easing will likely dictate movement in the yen,� said Eric Viloria, senior currency strategist at Forex.com.