Monday September 15, 2008 - 12:38:21 GMT
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Reuters - www.reuters.com
FOREX NEWS-Yen rallies on financial fears, dlr rebounds
* Lehman files for bankruptcy protection
* Risk aversion rises with financial sector fears
* Yen set for biggest daily gain in nearly 2 years
* Dollar down 2.1 percent at 105.66 yen
(Updates prices, add comments)
By Ian Chua
LONDON, Sept 15 (Reuters) - The yen appeared set on Monday
for its biggest daily percentage gain versus the dollar in
nearly two years as risk aversion mounted after Lehman Brothers
(LEH.N: Quote, Profile, Research, Stock Buzz) filed for bankruptcy protection.
But the dollar rebounded from early losses against other
major currencies such as the euro and rose sharply versus higher
yielding units as oil slid to seven-month lows and on fears the
U.S. banking problems will spread to other parts of the world.
"There is a high likelihood that the distress in financial
markets and wider evidence of slowing global growth are
prompting investors, particularly U.S. investors, to repatriate
those flows back into the United States and clearly that's been
boosting demand for the dollar," said Lee Hardman, currency
economist at Bank of Tokyo Mitsubishi-UFJ.
"That seems to be the strongest influence in the market at
the moment and outweighing the negative sentiment towards the
U.S. financial sector, which in the past would help fuel dollar
Higher-yielding currencies such as the Australian dollar
fell, European stocks fell more than 4 percent and
European credit spreads jumped wider. U.S. stock index futures
indicated a steep fall on Wall Street.
"In general, with equity markets today lower, it's the yen
and the lower-yielding currencies which are strong," said Marcus
Hettinger, global FX strategist at Credit Suisse.
The market was also digesting news Bank of America has
agreed to buy Merrill Lynch and the Federal Reserve will accept
stocks in exchange for cash loans for the first time ever.
Adding to worries about the extent of the global slowdown,
China cut interest rates for the first time since February 2002
to prop up its slowing economy, which had been seen as a major
driver of world growth to counter the downturn elsewhere.
At 1204 GMT, the dollar was down 2.1 percent against the
Japanese currency at 105.66 yen <JPY=> -- the biggest one-day
fall since early 2007 -- while the euro <EURJPY=> dropped 2.7
percent to 149.16 yen.
Seen also as a safe haven, the Swiss franc rose against the
dollar, which fell 0.5 percent to 1.1245 francs <CHF=>.
The euro <EUR=> slipped 0.7 percent to $1.4120, erasing
early gains, while the Australian dollar <AUD=> fell 2.6 percent
"The initial jump (in euro/dollar) was a reaction to
expectations for a U.S. rate cut. But it hasn't really changed
the macro scenario. Europe is just as exposed to the financial
mess as much as anyone," said Geoffrey Yu, FX strategist at UBS.
The uncertainty was so high that major central banks around
the world including the European Central Bank, Bank of England
and Bank of Japan said they stood ready to help soothe markets.
There is also speculation that the Fed, which holds its
regular policy meeting on Tuesday, may cut interest rates again.
Rate sensitive Fed funds futures are pricing in an 82 percent
chance of rates falling to 1.75 percent from 2.0 percent at the
September meeting. FEDWATCH
Lehman Brothers Holdings filed for bankruptcy protection on
Monday after trying to finance too many risky assets with too
little capital, making it the largest and highest-profile
casualty of the global credit crisis. [ID:nN15469897]
Underscoring the dire situation in the U.S. financial
sector, 10 of the world's biggest banks have pledged to
establish a $70 billion borrowing facility to bolster worldwide
liquidity and reduce volatility in what they called an
"extraordinary market environment." [ID:nN14815043].
Wall Street even arranged a rare emergency trading session
on Sunday to allow dealers in the $455 trillion derivatives
market to reduce their exposure to Lehman, though turnover was
said to have been light.
There are no major U.S. economic data releases due later on
Monday and all eyes will be on further developments in the U.S.
financial system and Wall Street's reaction to Lehman's news.
(Additional reporting by Veronica Brown; Editing by Ruth
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