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Dollar gains as coronavirus fears return to fore

U.S. dollar notes are seen in this picture illustration

By Noel Randewich

(Reuters) - The dollar strengthened on Wednesday as a rise in coronavirus cases in the United States reduced confidence in a quick economic recovery, and as the U.S. weighed tariffs on European products.

As the number of new coronavirus cases surged in many areas of the United States, the governors of New York, New Jersey and Connecticut - once at the epicenter of the outbreak - announced they will require visitors from states with high COVID-19 infection rates to quarantine on arrival.

"Ultimately, it is COVID driving things, and today the glass is half empty," said Axel Merk, president and chief investment officer at Merk Investments in Palo Alto, California. "The context, of course, is relevant because the dollar has been weakening in recent weeks, so it does not take much to reverse that trend."

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The dollar index strengthened 0.52% to 97.141. It remains down more than 5% from a three-year high of 102.99 in March.

The coronavirus pandemic is causing wider and deeper damage to economic activity than first thought, the International Monetary Fund said on Wednesday, prompting the institution to slash its 2020 global output forecasts further.

Concerns about an increase in tariffs also weighed on risk sentiment, and boosted demand for the greenback.

The United States is considering changing tariff rates for various European products as part of the trading partners' aircraft dispute, according to a notice by the Office of the U.S. Trade Representative on Tuesday.

The euro fell 0.43% to $1.1257. It had reached a one-week high of $1.1348 on Tuesday after data showed that a downturn in the euro zone economy eased again this month.

The greenback rose 0.39% to 106.93 Japanese yen. It fell as low as 106.06 yen on Tuesday, the weakest since May 7.

The Canadian dollar added to losses after Fitch downgraded the country's long-term foreign currency debt rating to "AA+", warning of a ballooning government deficit caused by public spending related to the pandemic.

The U.S. dollar was last up 0.46% against the loonie at $1.3607.

The New Zealand dollar underperformed after the country's central bank said the balance of economic risks remains to the downside and that it is prepared to use additional monetary tools as necessary.

The kiwi tumbled 1.29% to $0.6405.

(Additional reporting by Karen Brettell in New York; Editing by Marguerita Choy)