Thursday February 15, 2007 - 23:36:00 GMT
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Reuters - www.reuters.com
FOREX-Dollar sinks to 1-month low vs yen on soft U.S. data
NEW YORK, Feb 15 (Reuters) - The dollar tumbled to a one-month low against the yen on Thursday, extending losses after data showed foreign investors were net sellers of U.S. securities for the first time in nearly two years in December.
The greenback logged its biggest daily fall against the yen in around 10 months as the yen rallied across the board following data that showed Japan's economy grew at an unexpectedly brisk pace in the fourth quarter.
Data showing a surprise decline in U.S. industrial output last month, a spike in U.S. jobless claims last week and a sharp slide in U.S. mid-Atlantic region manufacturing activity also conspired to keep the dollar under pressure.
"On balance the data is more or less dollar negative," said Omer Esiner, senior market analyst at Ruesch International in Washington. "The dollar could be vulnerable to further losses in the immediate future."
The greenback also edged lower against the euro but recovered some ground after Federal Reserve Chairman Ben Bernanke told Congress that the economy may be stronger than some believe.
By late afternoon in New York, the dollar had dropped 1.25 percent from late Wednesday to 119.20 yen , bringing it three yen below a four-year peak hit late last month.
The yen surged broadly after a report showed Japan's economy grew at a 4.8 percent annualized pace in the fourth quarter, strengthening expectations that the Bank of Japan may raise interest rates next week from 0.25 percent.
The pound dropped almost 2 percent to 232.70 yen , its biggest daily decline against the Japanese currency in 14 months. The Australian and New Zealand dollars also plunged more than 1 percent against the yen.
Sterling's losses were exacerbated by a report showing that UK retail sales posted their biggest monthly fall in around 4 years in January.
Sterling, along with the Aussie and kiwi dollars, have been popular targets of carry trades, in which investors sell the low-yielding yen for higher-yielding currencies and profit on the spread.
The euro, which hit a six-week high at $1.3173 after U.S. capital flows data, eased back to around $1.3140 by late New York trade, up slightly on the day.
The Fed chief sparked a dollar sell-off during his first round of semi-annual testimony on Wednesday when he said inflation was showing signs of diminishing, sparking concern that the Fed may have to cut interest rates later this year.
The market was particularly caught off guard by the U.S. Treasury Department's report showing a net U.S. outflow of $11 billion in December, not nearly enough to finance that month's trade deficit.
The capital inflow report is closely watched as a gauge of the dollar's fortunes, particularly because the United States needs to attract some $2 billion a day in net foreign investment to finance its current account deficit.
Foreign private investors cut their purchases of U.S. securities by two-thirds, while U.S. investors plowed a record amount of cash into international stock markets.
After the unexpectedly soft data on U.S. manufacturing, futures on the Federal Reserve's funds rate showed investors slightly raised their expectations that the Fed will cut interest rates in the second half of 2007.
Â© Reuters 2007. All Rights Reserved.
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