* Dollar hits 3-month high vs basket of currencies <.DXY>
* Stocks lurch lower on banking sector woes
* Yen rebounds vs dollar, euro; month-end flow supports
* Citi reaches deal with U.S. government; U.S. futures down
(Recasts, changes byline)
By Farah Master
LONDON, Feb 27 (Reuters) - The dollar rose broadly on
Friday, hitting a three-month high versus a basket of
currencies, after weak equity markets and global banking
concerns returned to haunt investors.
Beleaguered U.S. bank Citigroup <C.N> reached a deal with
the U.S. government and said it will exchange preferred
securities for common equity to as much as $81 billion.
[] U.S. stock futures turned lower on the news.
Bank shares fell sharply in Europe, led by Lloyds Banking
Group <LLOY.L> after a 2008 statutory loss of 10.8 billion
pounds ($15.4 billion). The bank also said it was in talks to
place billions of pounds of assets into a UK-government backed
insurance scheme [].
The yen gained sharply, snapping a string of losses that
took it to three-month lows this week against the dollar, with
dealers citing month-end flows even as Japanese industrial
output data continued to paint a bleak picture of the economy.
"Ultimately the foreign exchange market is still closely
following what is going on in equity markets," said Neil Mellor,
currency strategist at Bank of New York Mellon.
"We have seen repeatedly through the course of the crisis
that the dollar has benefited on days when stocks have been
lower," he added.
By 1226 GMT, the dollar was up 0.4 percent on the day at
88.202 <.DXY>, having earlier hit a three month high of 88.328.
World shares as measured by MSCI's world equity index
<.MIWD00000PUS> closed in on the six-year low set on Tuesday.
The euro fell 0.6 percent to $1.2657 <EUR=>, while yen
strength pulled the single currency down 1.5 percent to 123.37
yen <EURJPY=R>.
Sentiment towards the euro was also undermined by stock
market losses with investors shrugging off news that global
development banks had launched a coordinated plan to lend up to
25 billion euros to shore up banks in crisis-hit eastern Europe.
The euro zone's unemployment rate crept up more than
expected in January while inflation was confirmed at its lowest
in almost 10 years, data showed on Friday. []
Elsewhere, the Swedish crown tumbled to a record low against
the euro <EURSEK=> after data showed the Swedish economy
contracted more than twice as much as forecast in the fourth
quarter.
YEN STRIKES BACK
The dollar lost almost 1 percent to 97.47 yen -- taking it
further away from three month highs hit the previous day at
98.70 according to Reuters data <JPY=>.
On a monthly basis the dollar is on course for a rise of
nearly 9 percent on the yen, its biggest monthly gain in
percentage terms since 1995.
But Japanese data continued to paint a gloomy picture of the
economy, dampening prospects of a sustained yen rebound.
Japanese industrial production plunged 10.0 percent in
January from the previous month, posting its biggest drop on
record and underscoring the sombre outlook that has helped drive
the yen lower in the past couple of weeks. []
Dealers said the data did little to change views the yen
would resume its slide once profit-taking and month-end selling
by Japanese exporters, to benefit from the favourable exchange
rates, had worked its way through.
"For the past 5 days we have seen the yen cede ground. There
has been a tipping point with the economy. We have got to the
point where now deflation is almost a certainty," BONY Mellon's
Mellor said.
The yen has fallen since hitting a 13-year high of 87.10 yen
in January, with the slide steepening after poor GDP numbers
last week and the resignation of the finance minister after he
was forced to deny being drunk at a G7 meeting.
(Additional reporting by Veronica Brown and Tamawa Desai in
London; Reporting by Farah Master; Editing by Chris Pizzey)
