* Lehman bankruptcy sparks risk aversion
* Yen rallies broadly, U.S. stocks slide
(Recasts; adds comment, details, updates prices, changes
byline)
By Nick Olivari
NEW YORK, Sept 15 (Reuters) - The U.S. dollar fell against
the euro on Monday amid increased risk aversion after Lehman
Brothers Holdings Inc <LEH.N> filed for bankruptcy protection,
spurring a stock market sell-off, while the yen rallied on the
unwinding of carry trades.
The dollar had managed to hold gains against the euro for
most of the New York session, but as Wall Street benchmark
indexes extended losses in late trading, the U.S. currency fell
in their wake.
Investor attention is now focused on American International
Group <AIG.N>, once the world's largest insurer, for clues as
to whether there are other companies that may need to raise
capital to cover mortgage-related losses.
Treasury Secretary Henry Paulson said on Monday the U.S.
financial system remained sound despite current stresses and he
was prepared to take further actions if necessary to maintain
stability. For details, see []
"So far, the efforts of the US government have failed to
bring any stability to the financial markets," said Kathy Lien,
director of currency research at Global Forex Trading.
The euro <EUR=> rose 0.6 percent to $1.4308, though it
remained off its session high of $1.4479.
The ICE Futures U.S. dollar index <.DXY>, which measures
the dollar's performance against a basket of six currencies,
was little changed at 78.311 after climbing as high as 79.360.
CARRY TRADES UNWOUND
The rise in risk aversion led investors to unwind carry
trades, which are funded by borrowing in the low-yielding yen.
The dollar fell to 104.55 yen <JPY=> at one stage,
according to Reuters data. It was last down 2.9 percent at
104.83, while the euro <EURJPY=> dropped 2.2 percent to 150.00
yen.
Seen as a safe haven, the Swiss franc rose against the
dollar, which fell 1.9 percent to 1.1092 francs <CHF=>.
Lehman's bankruptcy protection filing made it the largest
and highest-profile casualty of the global credit crisis.
At the same time, the market was also digesting news that
Bank of America <BAC.N> had agreed to buy Merrill Lynch <MER.N>
and the Federal Reserve would accept equities in exchange for
cash loans for the first time in its history.
While Wall Street stocks were volatile and 10-year U.S.
Treasury credit default swaps hit a record wide, the foreign
exchange market was not yet fearing a U.S. financial system
meltdown, analysts said.
The high-yielding Australian and New Zealand currencies
fell sharply versus both the U.S. dollar and the Japanese yen.
The uncertainty was so high that major central banks around
the world, including the European Central Bank, Bank of England
and Bank of Japan, said they stood ready to help soothe
markets.
There is also speculation that the Federal Reserve, which
holds its regular policy meeting on Tuesday, may cut interest
rates again.
Fed funds futures are pricing in a 76 percent chance of
rates dropping to 1.75 percent from 2.0 percent at the
September meeting <FEDWATCH>.
(Reporting by Nick Olivari and Lucia Mutikani; editing by Gary
Crosse)
