Friday April 11, 2008 - 23:50:53 GMT
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Reuters - www.reuters.com
FOREX-Yen rallies broadly as U.S. stocks plunge
(Recasts, adds comments, changes byline)
By Vivianne Rodrigues
NEW YORK, April 11 (Reuters) - The yen rose broadly on
Friday after a fall in quarterly earnings for industrial
conglomerate General Electric stoked fears about the health of
the U.S. economy, causing investors to dump riskier trades.
U.S. stock indexes fell more than 2 percent on Friday,
dragging the dollar lower against the low-yielding Japanese yen
and Swiss franc. Investors regard the stock market as a
barometer for risk appetite.
Analysts said news that General Electric Co (GE.N: Quote, Profile, Research), the
second-largest U.S. company by market capitalization, reported
a 6 percent drop in profits, along with data showing U.S.
consumer morale plunged to a 26-year low in April, pointed to a
deeper malaise for the world's economic powerhouse.
"There has been so much complacency stemming from the
notion that systemic risk has diminished just because we are
not seeing any high-profile rescue operations such as Bear
Stearns," said Ashraf Laidi, chief FX strategist at CMC Markets
in New York. "People have an erroneous sense of comfort and it
is absolutely ridiculous to think the worst is behind us."
A collapse of Bear Stearns (BSC.N: Quote, Profile, Research), then the fifth-biggest
U.S. investment bank, was averted last month when the Federal
Reserve stepped in and helped arrange its sale to JPMorgan
Chase & Co (JPM.N: Quote, Profile, Research).
"GE is a good proxy for the U.S. economy. The weakness in
GE (profits) has raised concerns over the weakness of the U.S.
economy. That put some pressure on the dollar," said Ronald
Simpson, director of FX research at Action Economics in Tampa,
"The biggest loser has been dollar/yen because it is
significantly correlated to the U.S. equity market's
The dollar dropped to a session low of 100.66 yen and was
last trading at 100.76 yen <JPY=>, down 1 percent on the day.
The euro fell 0.5 percent to 159.53 yen <EURJPY=>.
G7 COMMUNIQUE LOOMS
The euro closed in on this week's record high, supported in
part by speculation that top financial officials from the Group
of Seven rich nations may not make a coordinated effort to talk
up the dollar when they meet later in the day.
"Ahead of the G7 meeting, it's a bit of a wait-and-see
approach in regards to the euro," said Matthew Strauss, a
senior currency strategist at RBC Capital in Toronto. "Foreign
exchange is not the main focus of this meeting, but they may
address the volatility in the market."
The euro's gains were capped as a report showing an
unexpected jump in U.S. import prices in March reminded
investors about swelling inflationary pressures, which could
limit the Fed's ability to continue cutting interest rates.
The euro <EUR=> was last up 0.5 percent at $1.5827 after
rising to a session peak of $1.5855, not far from a record high
of $1.5902 hit on Thursday, according to Reuters data.
Analysts said the market was reluctant to drive the dollar
too much lower ahead of the G7 communique, but many did not
expect any change in the group's language on currencies.
CARRY TRADES UNWOUND
The Japanese currency also rallied against the New Zealand
and Australian dollars as concerns about the U.S. economy
encouraged investors to unwind carry trades, which are funded
by borrowing in low-yielding currencies such as the yen and
investing in currencies and assets offering higher returns.
The Swiss franc also benefited, with the dollar falling 0.7
percent to 1.0014 francs <CHF=>, while the euro slipped 0.2
percent to 1.5832 francs <EURCHF=>.
Low-yielding currencies such as the yen and Swiss franc
tend to attract flows during periods of uncertainty as the low
interest rates reflect the capital surplus of their countries.
(Additional reporting by Lucia Mutikani; Editing by James
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