Dollar Rallies Against Yen

Gold is up $1.70 at $654.80 an ounce.
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The dollar was soaring to its highest level against the yen in 4 1/2 years Wednesday, after new government figures showed surprisingly robust U.S. retail sales for May.

One dollar was buying 122.32 yen, up from 121.74 yen late Tuesday. The last time that level was hit was December 2002.

The greenback was strong in Europe also, where the euro fell to $1.3296, down from $1.3311 previously. It's the weakest in dollar terms for the euro since March.

Contributing to the moves was news that retail sales grew 1.4% last month, more than double the consensus estimate of 0.6%, according to new figures from the Commerce Department.

"I think

the data provide another indication that the weakness in the housing market isn't spilling over into the broader

U.S. economy," says Derek Burleton, an economist with TD Bank Financial Group in Toronto.

Some weeks ago there was widespread belief that the

Federal Reserve

may cut its benchmark short-term interest rate if the sluggish housing sector worsened enough to imperil the rest of the economy, but that now seems like a distant memory, Burleton explains.

For now, the increased likelihood of higher returns from holding dollars makes the U.S. currency more attractive to investors relative to euros and yen.

The

Currency Shares Euro Trust

(FXE) - Get Report

, which holds euros, was up marginally, despite the weakness in the foreign exchange market.

Despite the dollar's advance, benchmark futures contracts for gold were rising $1.70 at $654.80 an ounce. Silver was ahead by 6 cents at $13.15 an ounce in recent New York action.

In general, dollar-denominated assets, such as the metals, tend to fall in price as the greenback rallies. However, the strength of the U.S. economy does raise inflation worries and so can boost precious metals demand. Some investors purchase gold and silver as a long-term hedge against the value-withering effects of rising consumer prices.

The

streetTracks Gold Shares

(GLD) - Get Report

and the

iShares Silver Trust

(SLV) - Get Report

, which hold bars of precious metals, were up 0.7% and 1.2%, respectively.

As for base metals, copper prices were up 2 cents at $3.31 a pound.

Elsewhere in industrial metals, Bear Stearns lowered shares of Canada's

Alcan

(AL) - Get Report

to a peer perform rating from outperform, but the stock was little changed in recent action.