* The dollar index is stable as risk appetite improves

* Australian dollar leads gains, helped by RBA

* Chart: Global exchange rates https://tmsnrt.rs/2RBWI5E (Price update, add comments and details)

By Elizabeth Howcroft

LONDON, Dec. 7 (Reuters) – Support for monetary policy in China and hopes that the Omicron variant of COVID-19 will be less severe than expected boosted the currency market’s risk appetite on Tuesday, with the rebound of the Australian dollar and the euro heading 2021 low.

Global stock markets and oil gained, leaving traders to shed currencies and safe-haven bonds, as markets relied on reports in South Africa earlier in the week, saying Omicron cases were there. had shown only mild symptoms.

America’s top infectious disease official Anthony Fauci told CNN on Sunday that “there doesn’t appear to be a great deal of severity” so far.

Developments in China contributed to the risky tone, as the People’s Bank of China (PBOC) said it would reduce the amount of liquidity banks are required to hold in reserve. It was his second such move this year and is seen as a way to free up liquidity to support economic growth.

The PBOC also reduced the rates on its repayment facility by 25 basis points to support the rural sector and small businesses.

At 1254 GMT, the dollar index was up about 0.1% on the day to 96.392.

The euro lost 0.3% to $ 1.1255 – after struggling to recover since reaching its lowest level in 2021 last month, penalized by expectations that the US Federal Reserve will tighten its policy faster than the accommodating European Central Bank.

German investor sentiment deteriorated in December as a fourth wave of COVID-19 infections and lingering bottlenecks in the manufacturing sector clouded the growth outlook for Europe’s largest economy, according to the ZEW survey.

“The euro is used as a vehicle to finance long-risk transactions,” said Kenneth Broux, FX strategist at Societe Generale.

“China’s economy is the second in the world. So the markets are not really immune to an easing of monetary policy there and that is generally quite bullish for stocks and risky assets.”

The offshore yuan rose about 0.1% to 6.3683.

The New Zealand dollar was also higher, up 0.2% to $ 0.6769 and the British pound was flat at $ 1.32495.

The Australian dollar, seen as a liquid indicator of risk appetite, rose 0.8% to $ 0.7105 at 1301 GMT, extending its gains from Monday when it recorded its best percentage rise in seven weeks.

At its meeting, the Reserve Bank of Australia made no policy changes, but said Omicron should not derail the country’s economic recovery. Analysts said market speculation on a faster reduction in central bank bond purchases was also supporting the currency.

“Omicron’s impact ultimately holds the key to the short-term policy direction, but the RBA has clearly positioned itself among central banks (like the Fed) that do not currently see the new variant as likely to really put the brakes on. recovery and politics, “wrote the ING FX strategists in a note to clients.

“With still a lot of short positions to unwind, this is a notion that may continue to offer support to the Australian dollar in the weeks to come.”

The focus is on a video conference between US President Joe Biden and Russian President Vladimir Putin, in which Biden is expected to say Russia will be hit with the toughest economic sanctions to date if it invades Ukraine.

The Russian ruble strengthened ahead of the call.

Major cryptocurrencies continued to recover after the weekend crash. Bitcoin rose about 1% to $ 51,045.09, still below the all-time high of $ 69,000 reached last month.

(Reporting by Elizabeth Howcroft; Editing by Catherine Evans and Bernadette Baum)

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