Author: lindsay

By Kevin Plumberg, Reuters

NEW YORK, Nov 15 (Reuters) - The dollar rose against the euro but slipped against the yen on Thursday as fears about the credit crunch's impact and falling equity markets led investors to pare back on profitable but extended trades.

Uncertainty about the extend of the damages from the U.S. subprime mortgage crisis continued to pervade markets. Standard & Poor's cut it's long-term rating on Bear Stearns Cos as the company prepared to report its first-ever quarterly loss, while General Electric Co said on Wednesday its short-term bond fund had run into trouble and all its outside investors have liquidated their holdings.

Continued nervousness about the environment for lending has caused some dealers to trim their bets against the dollar and to reduce yen carry trades, in which the low-yielding Japanese currency is borrowed to fund purchases of higher-yielding ones.

"Risk aversion remains the guiding principle in foreign exchange markets today, with further financial-sector write-downs negatively impacting stock market performance," said Michael Wollfold, senior currency strategist with The Bank of New York Mellon.

"Declines in equity prices are keeping yen carry trades sidelined, with the greenback on the receiving end of a mild safe-haven bid," Woolfolk said in a note.

The dollar was down 0.5 percent on the day at 110.80 yen, within sight of 18-month lows of 109.10 yen set earlier this week.

The euro was down 0.2 percent at $1.430, more than a cent from a record high of $1.4752 hit last week, according to Reuters data.

"If we see the market take the euro below $1.45, then the euro will drift to the $1.43-to-$1.42 range," said Adam Hewison, president of INO.com in Shady Side, Maryland. "Overall, the market looks like it's overdone on dollar selling."

Against the yen, the euro was down 0.7 percent at 163.13 yen.

The high-yielding Australian dollar fell 0.5 percent against the greenback and the New Zealand dollar fell 0.7 percent to US$0.8920 and US$0.7585, respectively. Sterling fell to a three-week low against the dollar, hit by an unexpected fall in retail sales data. The pound fell 0.3 percent to $2.0465.

A currency dealer with a Dutch bank said many other traders are watching the pound continue to drop sharply from 26-year highs above $2.1100 reached last week, and getting nervous about locking in profits before the end of the year.

High-yielders like sterling and the New Zealand and Australian currencies could see further losses as a result of hedge fund withdrawals, according to some analysts.

Investors have to give 45 days' notice if they want to withdraw cash from hedge funds, meaning that those who want to close their positions by year-end have to say so now.

"Clients may take some money off the table as was the case in Q3 when Aug. 15 was marked with massive selling across all equity indices," said Ashraf Laidi, chief FX analyst at CMC Markets U.S. "In this case, we expect renewed rallies in the yen crosses and for the Aussie, kiwi and loonie to come under pressure."

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Kevin Plumberg reports for Reuters from New York

*Reuters is a registered trademark and belongs to Reuters

Dollar slips vs. euro, sterling; steady vs. yen
Greenback touches another record low against euro

By Lisa Twaronite, MarketClub
Last Update: 4:21 PM ET Nov 2, 2007

SAN FRANCISCO (MarketWatch) -- The dollar was lower against most of its major counterparts and touched a new euro low despite Friday's stronger-than-expected employment data, as continuing concerns about the U.S. financial sector weighted on the greenback.

The euro was trading at $1.4515, up from $1.4432 in late U.S. trading Thursday.

Earlier in the session, the European unit rose to $1.4527, a fresh high since the euro began trading in January 1999.

"As a trader you have to be long euros short dollars with a close like this on the weekend. Many traders are looking for the other shoe to drop in regards to losses" in structured investment vehicles and collateralized debt obligations, said Adam Hewison, president of INO.com, a technical analysis Web site.

"The euro/dollar is very close to our primary target of $1.4550," he added.

The pound sterling was trading at $2.0889, up from $2.0789 Thursday.

The dollar index, which measures the greenback against a basket of currencies, was down about 0.4% at 76.295. Earlier, the index touched a low of 76.242, which was its lowest level since the index was first compiled in 1973.

But the dollar was higher against its Japanese counterpart, buying 114.89 yen compared with 114.61 late Thursday.

Date from the Labor Department early Friday showed U.S. economy created 166,000 jobs in October, which was the best job growth since May and beat the 93,000 expected by economists surveyed by MarketWatch.

Some analysts said that the upbeat data increased rather than alleviated the pressure on the dollar.

"The payroll report is supportive for risk appetite, and therefore dollar-negative. It doesn't materially change [the] outlook for monetary policy, but does suggest growth hasn't faller off a cliff," said Steve Pearson, currency strategist in London for the Bank of Scotland Treasury Services.

A separate set of data from the Commerce Department indicated orders for U.S.-made factor goods rose 0.2% in September on higher gasoline prices. The headline figure also beat economists' consensus expectation of a 0.7% decline.

U.S. stocks shed early gains and sent investors scurrying into the perceived safety of fixed-income assets, but then seesawed between positive and negative territory in afternoon trading before closing higher.

A Wall Street Journal report the Merrill Lynch & Co. had engaged in deals with hedge funds to delay when it has to record losses on risky mortgage-backed securities heightened investors' worries about the financial sector. Merrill later denied the report.

Late int he session, Dow Jones reported that Citigroup, Inc. board members are expected to gather for an emergency meeting this weekend, citing two people familiar with the matter. It wasn't immediately clear what the meeting would address, but the subject of further write-downs could come up, the report said.

Carry trades weigh on yen

Japan's currency remained under pressure due to interest rate differentials.

At 0.5%, Japan's benchmark is the lowest in the developed world. The makes it popular for carry trades, in which global investors borrow lower-yielding currencies to invest in high-yielding assets.

Before the meltdown of the U.S. subprime mortgage market, many analysts had expected Japan's central bank to raise rates in August, with another hike expected to follow within the fiscal year. But following the summer's credit crisis and the U.S. Federal Reserve's easing in response to it, Japanese policy makers have opted to stand pat.

The likelihood that the Bank of Japan will raise rates in Japan's fiscal year, which ends in March, fell to about 50% on Friday, the Nikkei reported in its Saturday edition, citing a market gauge based on overnight trading of index swaps.

Meanwhile, both the European Central Bank and the Bank of England are expected to hold interest rates steady at their policy meetings next week.

"With no cuts on the horizon and a slumping dollar, the euro should move to new heights," wrote analysts at BMO Capital Markets.

"The BoE should remain on hold for a fourth month in November, as the economic data have yet to point to a slowdown," they added.

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Lisa Twaronite reports for MarketWatch from San Francisco

*MarketWatch is trademarked and belongs to the Dow Jones, Co.