* Dollar falls more than 1 percent vs euro, sterling and yen
* Comments from ECB's Nowotny suggest stop to further euro
weakening
(Recasts to note dollar falling after Nowtony comments, adds
quotes)
By Dion Rabouin
NEW YORK, Dec 9 (Reuters) - The dollar fell sharply on
Wednesday as speculators betting on euro weakness were hit by
comments from European Central Bank policy maker Ewald Nowotny
that added doubts about expected monetary policy divergence
between the United States and Europe.
The euro EUR= and yen JPY= both hit one-month highs
versus the dollar as traders reversed course on the bullish
trend that pushed the greenback to multi-month highs against
both currencies.
It was the weakest the dollar has been against the two since
a surprisingly robust U.S. jobs report on Nov. 6 pushed it
broadly higher.
Nowotny rattled trading after he said markets had
overestimated what action the European Central Bank would take
at its Dec. 3 policy meeting, calling it a "massive failing of
market analysts."
The ECB announced last week that it would cut its already
negative deposit rate further, but said it would not add to its
quantitative easing program, disappointing investors. The move
sent the euro up 3.1 percent on the day, its biggest one-day
percentage climb since March 2009.
Analysts attributed the violent nature of the move to the
fact that investors had big bets on further gains in the dollar
that were interrupted by the ECB's action. Analysts said that
some of Wednesday's selling in the dollar was due to further
short-euro bets being cleared out of the market.
"Nowotny really started things off today when in a market
that's looking for information he was really the sole voice,"
said Douglas Borthwick, managing director at Chapdelaine Foreign
Exchange in New York.
The euro EUR= increased 1.2 percent, last trading at
$1.1025, and sterling added 1.18 percent to $1.5182. The dollar
fell 1.45 percent against the yen JPY= , to 121.14 yen.
Many investors were holding positions in expectation of
further stimulus in the euro zone that would contrast with a
rate increase from the U.S. Federal Reserve, Borthwick said.
When the ECB declined to add more quantitative easing that took
out one half of the strategy, he added.
Since then, the dollar has recovered, in anticipation that
the recent trend of dollar strength would reassert itself, but
Nowotny's comments reinforced the idea that additional stimulus
may not be on its way, Borthwick added.
"People thought that the ECB would take a step back and try
to talk down the rhetoric, but instead you had Nowotny come out
today and say, 'You know what? The ECB is right,'" he said.
The dollar also tumbled more than 1 percent against the
Swiss franc CHF= and Swedish SEK= and Norwegian crowns
NOK= . The Norwegian crown had fallen to a 13-year low against
the dollar on Tuesday as oil prices dropped.