(Updates prices, adds comment, changes byline)
NEW YORK, March 13 (Reuters) - The dollar fell to fresh
12-1/2-year low against the yen and a record low against the
euro on Friday after Bear Stearns said its liquidity position
had deteriorated, increasing fear of a deep U.S. recession.
The dollar fell to 99.58 yen <JPY=>, its lowest levels
since 1995, after a Bear Stearns executive said the bank's
liquidity position had deteriorated over the past 24 hours. It
last traded at 100.05 yen, down 0.4 percent.
The euro hit a new all-time record at $1.5688 <EUR=> before
easing to $1.5644, unchanged from late Thursday.
"The market is concerned about Bear Stearns saying that
their liquidity positions has deteriorated," said Steven
Butler, director of foreign exchange trading at Scotia Capital
in Toronto. "It means things are really getting worse for the
U.S. economy."
The Bear Stearns news came as J.P. Morgan and the New York
Federal Reserve said they were planning to provide financing to
Wall Street bank.
Data showing U.S. consumer confidence fell to fresh
multi-year lows also weighed on the dollar and increased fears
that the economy may already be in a recession.
Earlier, a report showing underlying U.S. inflation was
unchanged in February also boosted the case for more intersect
rate cuts from the Federal Reserve, which has cut rates from
5.25 percent to 3 percent since September.
"The Fed has turned a blind eye to inflation in hopes that
slower growth would bring prices back in line, and this report
allows it to maintain that policy," said Michael Woolfolk,
currency strategist at the Bank of New York Mellon.
Ken Landon, global FX strategist at J.P. Morgan in New
York, said "this gives further support for the Fed rate cuts to
be more aggressive. I would think this would be very good for
equities, and if that's the case, that's also good for
dollar-yen because it means risk aversion will begin to
abate."
The dollar's sharp decline has sparked speculation that
central banks may intervene to prop it up for the first time in
more than a decade.
So far, though, it's been mostly verbal protests from
policymakers. Japanese Finance Minister Fukushiro Nukaga said
on Friday that excessive currency movements are undesirable,
but conceded that recent moves reflect dollar weakness rather
than yen strength.
Japan fears a strong yen will make exports more expensive
and undercut corporate profits, thus hurting the economy.
But a ruling party lawmaker in Japan also said on Friday
it would be difficult to intervene alone in foreign exchange
markets.
Woolfolk said it would take "a material and sustained break
of the dollar below 100 yen" to justify Japan to move, either
on its own or with other central banks.
(Additional reporting by Simon Falush in London and
Gertrude Chavez-Dreyfuss in New York; Editing by Andrea Ricci)
