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Dollar slips vs yen, euro on NY stock rout

TOKYO: The dollar fell against both the yen and the euro in Tokyo trading on Monday as the plunge in US stocks on Friday sorely tested the investment community's long love affair with US assets.

Nor was the dollar helped by the lack of a G7 statement on the yen over the weekend, an omission which many saw as raising the chance of an early hike in Japanese interest rates.

Still, dollar bulls took comfort in the fact the euro also failed to get a mention in the communique issued after the G7 meeting, while equity panic spread to Asian markets on Monday a "selling tsunami" one analyst called it.

The Nikkei alone shed almost seven percent, its fifth largest percentage drop ever, providing the dollar some comfort as foreign investors sold Japanese equities to raise money needed to cover losses at home.

But analysts argued the US was most exposed given the economy's reliance on foreign savings to feed its spending habit.

In late trade in Tokyo the dollar was teetering at 103.72 yen down from 104.75 in New York late on Friday.

The euro inched up to $0.9648 from $0.9619 in New York late on Friday. But it came under familiar pressure against the yen, slipping to 100.08 yen from 107.76.

Few were willing to predict how US stock markets would fare when trading resumes on Monday, but with the Nasdaq futures contract already trading 2.5 percent lower, most feared the worst.

"It looks like being pretty bloody at the opening," said Ken Landon, currency strategist at Deutsche Bank in Tokyo.

On Friday, the Dow Jones industrial average suffered its largest one-day point loss ever while the Nasdaq composite index fell almost 10 percent. The Nasdaq also recorded its worst week on record, shedding over 25 percent of its value.

"The yen is the main beneficiary and we expect to see a test of 102.50 in the next day or so," added Landon.

In contrast to the United States, Japan runs a huge trade surplus and is flush with domestic savings.

Dealers said the dollar would have fallen further if not for the threat of the Bank of Japan intervention. Such a scare briefly lifted the dollar to 105.60 in early trade.

Although the rumour proved unfounded, Japanese financial authorities have made no bones about their commitment to intervening whenever necessary to prevent a sharp a rise in the yen's exchange value.

Traders warned they might have to act soon if support around 103.80 yen gives way, as the area down to 103.50 is thought to be thick with stop-loss sell orders. If triggered, trades see a risk of a fast fall past 103.00 with the dollar's four-year low around 101.20 not far away.

As for the euro, dealers see it torn two ways this week.

"If the Nasdaq story and the new economy paradigm is going to be under cloud for a while, you can expect to see the euro make a bit of a comeback," said John Noonan, manager of institutional sales at Commonwealth Bank in Sydney, told Reuters Television.

But he was also surprised that the G7 dropped its concern about the strong yen and assumed the market felt free to take the currency higher without the risk of concerted action.

"The chance of anything coordinated is very, very low as far as the market's concerned," he said.

With equities so uncertain, traditional safe haven plays were much in vogue, including the Swiss franc, Japanese government bonds and US Treasuries.

Indeed, Treasuries extended gains made late on Friday, which some saw as a temporary cushion for the dollar since it implied investors had yet to desert US assets entirely.

"We do expect broad-based dollar weakness this year, but we really need to see this switching stop from equities to bonds before the dollar gets hit," said Steve Brice, Treasury economist at Standard Chartered in Singapore.

"We do expect that, its just whether we see it in the next week or the next two to three months," he said.

Currency bid prices. All data taken from Reuters with percent change calculated from the daily US close. -Reuters