By Satomi Noguchi
TOKYO, March 28 (Reuters) - The dollar fell back towards
record lows against the euro on Friday as rumours of more
troubles at U.S. investment banks kept investors on edge
about the ongoing fallout from the credit crisis.
The dollar resumed its losing streak after rumours on
Thursday that Lehman Brothers <LEH.N> could suffer a fate
similar to the near collapse of Bear Stearns <BSC.N> hurt
sentiment, traders said. Lehman called the rumours "totally
unfounded". []
News that investment bank Morgan Stanley <MS.N> could see
its $11 billion-plus credit line backing its commercial paper
programme shrink under $5 billion added to caution.
[]
The U.S. currency was also under pressure against the yen as
Japanese exporters and institutional investors repatriated funds
before Japan's fiscal year wraps up on Monday.
But many Japanese market players stayed on the sidelines and
limited their participation in asset markets before closing
their books for the current quarter and business year, making
price movements choppy.
While April usually marks a period when Japanese investors
start shifting funds into higher-yielding assets abroad and can
weaken the yen, traders said there may not be quite as much cash
going overseas this year.
"We might see some outflow in the first few weeks of April,
but we've seen a lot of repatriation," said Sean McGoldrick,
head of forex trading at Morgan Stanley in Tokyo.
"Until there is a significant recovery in markets, I think
the confidence of Japanese investors will be low. There's not a
lot of risk appetite out there."
The euro edged up to $1.5789 <EUR=> from around $1.5770 in
late U.S. trade on Thursday, turning back towards its record
high of $1.5905 after making a pause from sharp gains made
earlier this week.
Traders said the single currency could test $1.60 in the
next few weeks as investors focus on the widening yield
advantage of the euro over the dollar.
The dollar was little changed at 0.9932 francs <CHF=>,
holding near an all-time low of 0.9630 francs hit earlier this
month.
The U.S. currency was flat at 99.62 yen <JPY=>, staying in
sight of a 13-year low of 95.77 yen.
The yen briefly dipped after reports that North Korea had
fired short-range missiles on Friday, a move analysts saw as a
show of anger at Washington and the new conservative government
in Seoul. []
A series of weak housing and capital spending data has
convinced more investors the U.S. economy is already in a
recession and supported expectations for a big Federal Reserve
rate cut from the current 2.25 percent.
By contrast, European Central Bank President Jean-Claude
Trichet's remarks this week that euro zone rates were at the
right level cooled expectations for a near-term rate cut from 4
percent.
The yen showed little reaction to news that Japan's core
consumer inflation in February rose more than expected and
scored the biggest increase in a decade. []
Analysts said other data on Friday showed the economy was
not improving and the Bank of Japan remained more likely to cut
interest rates than raise them amid the global market
turbulence.
"The market focus is more on the fate of the dollar, so the
Japanese data didn't draw much attention," said Kengo Suzuki, a
currency strategist at Shinko Securities.
(Additional reporting by Eric Burroughs)
