* Dollar hits 3-month high vs yen of 94.94
* Euro falls vs dollar after Trichet, Fitch comments
* US government may take large stake in Citigroup
(Updates prices, adds details)
By Vivianne Rodrigues
NEW YORK, Feb 23 (Reuters) - The dollar rose to a
near-three month high against the yen on Monday as the Japanese
currency fell broadly on expectations the U.S. government could
take a large stake in U.S. lender Citigroup and inject more
funds into troubled domestic banks.
The Wall Street Journal reported the U.S. government would
take a stake of up to 40 percent in Citigroup by converting
preferred stock into common shares [].
This eased fears the government will completely nationalize
large U.S. banks while bolstering optimism it will stay more
proactive than other nations in stemming a recession.
The dollar and yen had been seen as the two safe-haven
currencies, but Monday's news made the dollar more attractive.
"The news that Citi is in talks with the government for
more capital in return for an increased equity stake is helping
provide a bit of a sentiment boost," said Sacha Tihanyi, a
currency strategist at Scotia Capital in Toronto.
"Though it seems a little bit premature as it is unclear
whether any such move would leave the bank a private sector
entity."
The Treasury Department, Federal Reserve and three other
federal agencies said in a joint statement they will initiate a
program on Wednesday to assess large U.S. banks' capital needs
and determine whether a bigger buffer is warranted.
[]
The U.S. agencies insisted they do not want to nationalize
banks as investors fretted over how struggling firms will cope
with rising recession-driven losses.
The euro reversed early gains against the dollar after
European Central Bank President Jean-Claude Trichet said the
euro-zone financial system is under severe strain and Fitch
voiced concern about Austria's AAA rating. For details, see
[] and [].
"The constant intervention is worrisome but a necessary
step to take at this part in the financial crisis," said Andrew
Bekoff, chief investment officer at LPB Capital LLC, a
Doylestown, Pennsylvania-based wealth management firm. "The
dollar is nearing a retest of its November highs."
In late afternoon trading in New York, the dollar was up
1.3 percent at 94.33 yen <JPY=>, less than half a yen from the
near-three-month high of 94.94 yen touched earlier in the
session, according to Reuters data.
The euro rose 0.4 percent to 119.92 yen <EURJPY=> after
earlier touching a one-month high of 121.91 yen.
EURO/DOLLAR CUTS GAINS
The euro erased early gains against the dollar, last
trading down 1 percent at $1.2702 <EUR=>, after trading at a
12-day peak of $1.2991.
Analysts said Trichet's comments brought back into focus
the economic and banking woes in the euro zone, while the Fitch
comments highlighted the problems facing some of the countries
on the region's periphery.
"I was surprised how strong the euro was right at the start
of the European session on the Citigroup news. This is
potentially just based on reports so far," said Chris Turner,
head of forex strategy at ING in London.
Traders said investors were wary of more bad news emerging
about the euro-zone economy, with the closely watched Ifo index
on the German economic climate due on Tuesday.
Analysts also noted disappointment that the weekend's
meeting of European leaders, who were crafting a joint approach
to an April G20 meeting, failed to yield any concrete agreement
on ways to deal with the recession [].
(Additional reporting by Nick Olivari; Editing by Dan
Grebler)
