Tuesday September 9, 2008 - 20:35:26 GMT
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Reuters - www.reuters.com
FOREX NEWS - US dollar slides vs yen; Lehman re-ignites credit woes
Tue Sep 9, 2008 4:21pm EDT
* Fall in Lehman Brothers shares weighs on dollar
* Yen rises as risk aversion returns
* U.S. financial sector worries persist
(Recasts, updates prices, adds comment, changes byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, Sept 9 (Reuters) - The U.S. dollar slumped
against the Japanese yen on Tuesday, as steep falls in Wall
Street stocks led by Lehman Brothers rekindled worries about a
shaky U.S. financial sector.
Shares in Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research, Stock Buzz), the fourth
largest U.S. investment bank, tumbled on concerns over its
ability to raise capital after reports that talks with a Korean
bank on a possible capital infusion had ended.
Lehman's more-than-40 percent drop on Tuesday, its biggest
one-day decline on record, eroded the market's initial optimism
about the U.S. government's weekend takeover of mortgage
financiers Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) and Fannie Mae <FNM.N.
That caused investors to back away from risky trades such
as stocks, pushing the dollar lower against the low-yielding
yen, which was used by investors to purchase these assets in
"Overall, there is still risk aversion in the market.
Investors keep going back and forth on whether the dollar
should be a flight-to-quality trade or whether it should be
something to be avoided," said Mark Frey, head trader at Custom
House, a global payments dealer in Victoria, British Columbia.
In late trading, the dollar dropped to a session low
against the yen at 106.84 <JPY=>. It last traded at 107.07,
down 1.2 percent on the day. The yen also surged against the
euro, pushing the single currency down more than 1 percent at
151.22 yen <JPY=>.
Analysts said there were fears that Lehman, the country's
fourth largest investment bank, could follow in the footsteps
of Bear Stearns, whose takeover was engineered by the U.S.
Treasury and the Federal Reserve in March. Lehman declined to
comment on its plunging share price.
Compounding matters for Lehman was a statement from
Standard & Poor's on Tuesday saying it might downgrade the
bank's credit ratings due to heightened uncertainty about the
firm's ability to raise additional capital given the recent
steep decline in its share price.
"If the risk aversion theme continues and we see reports
along the lines that we have been seeing for the last couple of
days in the equity market, then we could see the dollar fall
further. From a North American perspective, things are just not
getting rosy on the risk front," said Frey of Custom House.
WHO'S NEXT AFTER FANNIE AND FREDDIE?
Analysts have also taken a more critical stance of Sunday's
bailout of Fannie and Freddie and wondered who's next in line
for a takeover after the two distressed mortgage finance
"Capital markets are still broken after Sunday's historic,
if only temporary, takeover of two of the largest publicly
traded firms in U.S. history," said David Gilmore, a partner at
FX Analytics in Essex, Connecticut.
"The takeover helps the mortgage market function with
adequate financing and keeps GSE (government-sponsored
enterprises) debt holders whole ... but it also is another
signal of just how bad things have gotten," he added.
Analysts feared that if blue-chip banks, like Lehman
Brothers, can't get capital in the private sector, then the
Treasury may have to open its wallet again to keep them going.
That could have pernicious consequences on the U.S.
government's heavily burdened fiscal budget, possibly
jeopardizing the country's "AAA" credit rating.
The dollar index .DXY on the ICE Futures Exchange, which
measures the greenback's value against six major currencies,
was flat at 79.535 in afternoon trading. On Monday, it touched
a one-year peak at 79.844, according to Reuters data.
The euro was down 0.2 percent against the dollar at $1.4104
<EUR=>, still above a nearly 11-month low touched overnight.
The euro earlier got a bid against the dollar after data
showing U.S. pending home sales fell more than expected in
Sterling, meanwhile, the currency market's favorite
whipping boy over the past month, shrugged off a report showing
British manufacturing output fell for a fifth straight month in
July. The pound was last up at $1.7594 <GBP=>.
(Additional reporting by Lucia Mutikani; Editing by Jonathan
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