* Bank concerns boost dollar as investors seek safety
* Dollar index hits three-year high; euro down vs dlr
* U.S. set for $30 bln AIG bailout, HSBC in rights issue
* EU rejects mass east Europe bailout; euro zone PMI weak
(Updates prices, adds comment)
By Steven C. Johnson
NEW YORK, March 2 (Reuters) - The dollar soared to a
three-year high on Monday after a record loss for insurer AIG
added to worries that the financial crisis is growing more
severe and enhanced the U.S. currency's safe-haven appeal.
Wall Street sustained heavy losses, extending a global
stock market rout as the Dow opened below 7,000 for the first
time since 1997, while the dollar hit its highest level against
a basket of six major currencies since early 2006 <.DXY>.
European Union leaders' rejection of a mass bailout for
Eastern Europe pushed the euro below $1.26, as did a survey
showing euro zone manufacturers had their worst month in 12
years. For details, see [] and [].
But the biggest blow came from American International Group
<AIG.N>, which announced a $61.7 billion fourth-quarter loss,
the largest quarterly loss in U.S. corporate history. Earlier,
Treasury threw a new $30 billion lifeline to the company.
[] and [].
Analysts said the news reaffirmed suspicion that more
turmoil lies ahead, spurring investors to sell stocks for
safer, dollar-denominated alternatives such as Treasuries.
"With all the negative news lately -- today from the U.S.
insurance sector and the European summit -- the market is just
not prepared to take on a lot of risk," said Dustin Reid,
senior currency strategist at RBS Global Banking & Markets in
Chicago. "So you're seeing people pile into the dollar."
In New York, the euro was down 0.7 percent at $1.2578
<EUR=>, after hitting a session low of $1.2547, according to
Reuters data. The dollar fell 0.3 percent to 97.19 yen <JPY=>.
The euro was hit hard after EU leaders rejected calls, led
by Hungary, for a 180-billion-euro aid package to rescue
Eastern European countries suffering through a deep recession.
The EU agreed only to help countries on a case-by-case basis.
"It keeps alive the story that sovereign risk in Europe is
marching higher as there's still no coordinated package" to
address the problem, said Richard Franulovich, senior currency
strategist at Westpac Banking Corp in New York.
If not for heavy selling of the British pound against the
euro, he said, the common currency would be vulnerable to a
push toward the $1.2330-$1.2350 area last seen in late
October.
Sterling tumbled to $1.3959, its lowest level since late
January, before edging back to $1.3988 <GBP=>, still 2.2
percent weaker on the day.
'ROLL CALL OF REASONS' TO AVOID RISK
HSBC's <HSBC.L> 12.5 billion pound ($17.7 billion) rights
issue, launched at a deep discount after annual profit more
than halved and bad debts soared in the United States, also
weighed on risk appetite and pushed European stocks lower.
[].
"There's a roll call of reasons to stay risk averse -- the
news from AIG, HSBC and worries about Eastern Europe and that
is benefiting the dollar," said Geoffrey Yu, a currency
strategist at UBS in London.
Outside the U.S. dollar, only the yen was seeing a bid
among major currencies on Monday as it attracted moderate
safe-haven buying as equity markets turned lower. The euro fell
1.1 percent to 122.24 yen <EURJPY=>.
"The global slump in equity prices appears to be offering a
lingering lifeline to the Japanese yen, (though) quite why
we're unsure," said Andrew Wilkinson, senior market analyst at
Interactive Brokers Group in Greenwich, Connecticut.
The yen used to be seen as a safe-haven alternative but has
lost some of its luster as data showed Japan's economy shrank
in the fourth quarter as exports fell sharply.
(Additional reporting by Tamawa Desai in London and Gertrude
Chavez-Dreyfuss and Nick Olivari in New York; Editing by
Editing by Jonathan Oatis)
