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Thursday March 5, 2009 - 21:46:54 GMT
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FOREX NEWS-Dollar boosted by US stocks plunge, rate cuts

Thu Mar 5, 2009 4:38pm EST

* Dollar up vs most currencies as Wall Street tumbles

* Euro falls as ECB cuts rates, lowers growth forecast

* BoE cuts rates, announces asset purchases, pound slips (Updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, March 5 (Reuters) - The dollar firmed against most currencies on Thursday as stocks dropped amid worries about General Motors (GM.N: Quote, Profile, Research, Stock Buzz) and the fate of U.S. banks, attracting bids for the greenback as a safe haven.

The U.S. currency, however, fell versus the yen after earlier touching a four-month high near 100 yen.

The yen typically gains, along with the dollar, in times of deep financial stress as investors sell risky assets they bought with cheap loans in the Japanese currency.

But the dollar/yen's correlation with equities broke down recently as investors sold the yen, worried over Japan's economic recession.

"High risk aversion is once again the day's theme, with stocks falling, which has kept the dollar firm," said Brian Dolan, chief currency strategist at in Bedminster, New Jersey.

"Plus, we've got more bad news coming tomorrow with the non-farm payrolls report," he said, adding that it's hard to see any silver lining for the economy.

Interest-rate cuts by the Bank of England and European Central Bank earlier helped push the euro and sterling lower versus the dollar. See [ID:nSP392276].

In late trading, the euro fell 0.6 percent to $1.2557<EUR=> after earlier hitting session lows at $1.2483.

But the dollar fell 1.3 percent to 97.82 yen <JPY= as traders took profits after the greenback's earlier rise to 99.67 yen, its highest since early November.

Markets are focusing on the U.S. February non-farm payrolls report due from the Labor Department on Friday. Analysts are expecting job losses of 648,000, according to a Reuters poll, with some forecasting job cuts as high as 800,000.

GM shares fell sharply, weighing on U.S. stocks, after its auditors raised doubts about the carmaker's viability. Speculation about a possible credit downgrade for General Electric (GE.N: Quote, Profile, Research, Stock Buzz) that would affect its finance arm knocked bank stocks lower, traders said.

Worries about Japan's economy, which contracted sharply in the fourth quarter as exports plummeted, are expected to limit yen gains, though. Brian Kim, a currency strategist with UBS in Stamford, Connecticut, said he expects the dollar to renew its assault on 100 yen in the days ahead.


Markets were also disappointed that Chinese Premier Wen Jiabao, in his annual speech to the National People's Congress overnight, did not make an announcement about adding to the original 4 trillion-yuan stimulus package introduced in November, analysts said. See [ID:nPEK39999].

Global markets had soared while the dollar had fallen versus the euro on Wednesday on speculation Wen would add to the stimulus plan unveiled in November.

Earlier in the session, the euro dipped below $1.25 after the ECB cut rates by a half-percentage point to a record low and said the 16-nation euro-zone economy may shrink up to 3.2 percent in 2009.

ECB President Jean-Claude Trichet did not rule out additional moves on interest rates, suggesting borrowing costs may yet fall below their current 1.5 percent.

Sterling fell 0.3 percent to $1.4125 <GBP=> after the Bank of England cut interest rates to a record low and said it would start buying 75 billion pounds ($106 billion) of assets to boost the UK economy.

Unlike the BoE, the ECB did not give any clear hints about quantitative easing plans, but Trichet's warning that rates could still fall further kept pressure on the common currency.

Kathy Lien, director of FX research at GFT, said the market could be surprised by the jobs report. Lien said the job losses could be less than 600,000 and cited the rebound in the employment component of the service sector index provided by the Institute for Supply Management.

"Over the past 10 years, there has been an 82 percent positive correlation between non-farm payrolls and the employment component of the service sector report," she said. (Additional reporting by Steven C. Johnson; Editing by Kenneth Barry)

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