(Changes byline, updates prices, adds quotes)
By Veronica Brown
LONDON, March 17 (Reuters) - The dollar plumbed fresh depths
across the board on Monday as liquidity-boosting measures
launched by the Federal Reserve over the weekend failed to quell
worry about the health of the U.S. economy and financial sector.
Stricken Bear Stearns is being bought by rival JP Morgan
Chase for just $2 a share -- versus Friday's closing price above
$30 -- in a sign that even heavyweights of the financial sector
can be brought down by U.S. subprime mortgage debt and the
resulting credit crunch which took hold last summer.
The Federal Reserve took more emergency measures to stem the
fast-spreading financial crisis, cutting its discount rate by 25
basis points to 3.25 percent on Sunday and opening up discount
window lending to major investment banks, a tool not used since
the Great Depression.
But the moves did not stop the dollar from tumbling as much
as 3 percent to below 96 yen, its lowest since 1995 and bringing
year-to-date losses to more than 13 percent.
"The dollar is suffering from the dual shock of an economic
slowdown and a financial crisis," said Teis Knuthsen, head of FX
research at Danske Markets in Copenhagen.
"Until we see signs of an improvement on one of these two
fronts, ideally both, then the dollar will remain under more
pressure," he added.
The dollar fell as low as 95.77 yen according to Reuters
data <JPY=>, and set a historic trough at 0.9637 Swiss francs
<CHF=> after breaking below parity last week.
Implied volatility -- a key component of option prices -- in
dollar/yen surged to its highest levels in around a decade both
on the one-week <JPYSWO=> and one-month <JPY1MO=> horizon.
The euro rose as high as $1.5904, having already added
around 4 percent in the first two weeks of March, roughly
doubling its year-to-date gains <EUR=>. It later pared those
gains to $1.5768 by 1121 GMT.
INTERVENTION?
The rapid dollar falls also fanned talk of possible
co-ordinated dollar-buying intervention from major central
banks, or at least of increased rhetoric in criticism of the
currency moves.
"From the ECB point of view, these are moves which are not
easy to ignore," Dresdner Kleinwort currency strategist Michael
Klawitter said.
Central banks in Europe, Japan and the U.S. last jointly
intervened in September 2000, propping up the euro after the
currency hit an all-time low below $0.85, a loss of nearly 30
percent of its value since its January 1999 launch.
This time though they have so far kept to words, with
Japanese Finance Minister Fukushiro Nukaga saying on Monday he
is watching currency market moves in cooperation with
authorities in the United States and Europe.
"Our feeling is that the timing is not ripe for this
(intervention) to happen -- therefore it remains a low
probability event," Danske's Knuthsen said.
"Although currency movements may seem excessive they are not
the cause of volatility in stock and credit markets: rather the
movements are the results of turmoil in other asset markets."
Further comments could come from ECB Executive Board member
Juergen Stark at 1340 GMT and Swiss National Bank Chairman
Jean-Pierre Roth at 1700 GMT. Also due are January data on U.S.
capital flows at 1300 GMT and February industrial output.
Short-term U.S. Treasury yields fell to five-year lows as
investors expect the Fed could slash overnight rates by up to
100 basis points by the end of its policy meeting on Tuesday.
"Either way the Fed faces a lose-lose situation, as a less
than 100 bps rate cut will result in market disappointment and
an intensification of growth concerns resulting in a dollar and
equity market sell-off, whilst a 100 bps cut could see a limited
market reaction," Calyon said in a research note.
Concerns about the U.S. financial system prompted some
investors to shift their funds to what they considered as
safe-haven commodities, boosting spot gold to a record peak
above $1,030 per ounce <XAU=>. Oil <CLc1> hit a historic $111.80
a barrel.
Shares suffered as the Nikkei stock average <> fell 3.7
percent to its lowest close since August 2005, helping shave
3.25 percent off the value of European equities <>.
Banking stocks were particularly bad hit.
(Editing by Ruth Pitchford)
