* Dollar falls on worries about bailout plan
* Euro and sterling hit three-week highs
* More details of $700 billion bailout plan awaited
(Recasts, updates prices, adds comment, changes byline,
dateline; previous LONDON)
By Gertrude Chavez-Dreyfuss
NEW YORK, Sept 22 (Reuters) - The dollar weakened broadly
on Monday as the U.S. government's $700 billion bailout plan
aimed at easing a global credit crisis raised renewed concerns
about the country's massive budget deficit.
The package, which is awaiting Congressional approval,
would give sweeping powers to the U.S. Treasury to buy
mortgage-related bad debts from financial firms, including U.S.
subsidiaries of foreign banks.
Analysts say foreign investors will be increasingly
reluctant to finance the growing U.S. deficit at the current
dollar exchange rate and funding that gap would require higher
interest rates and a weaker greenback.
The Congressional Budget Office has forecast a record U.S.
budget deficit of about $438 billion in the next fiscal year,
excluding the cost of the bailout. The rescue package is
expected to raise the debt ceiling by 6.6 percent.
"There is uncertainty about the bailout plan, specifically
what it means for America's deteriorating fiscal position,"
said Omer Esiner, a senior market analyst, at Ruesch
International in Washington.
"This massive growing of debt that we are experiencing is
definitely going to have an impact on the appeal of dollar
assets. And the worsening fiscal position could ultimately
undermine the U.S. dollar going forward."
In early New York trading, the dollar was down 0.7 percent
on the day at 106.71 yen <JPY=>.
The euro hit a three week high at $1.4625 <EUR=>, and last
traded at $1.4599, up 0.9 percent. The single currency slipped
0.3 percent to 155.79 yen <EURJPY=R>.
Sterling also benefited from dollar selling, hitting its
highest in more than three weeks at $1.8473 <GBP=>.
Analysts also said the latest market ructions sparked by
the collapse of Lehman Brothers <LEH.N><LEHMQ.PK> last week and
the $85 billion bailout of troubled insurance giant AIG have
prompted investors to focus on the U.S. economy.
"The epicentre of the problem was the U.S. and markets seem
to be re-focusing on that now ... until you get to a stage
where the package starts to help the real economy," said Geoff
Kendrick, senior currency strategist at UBS.
SWIFT ACTION ON THE BAILOUT
Democratic leaders in Congress have promised swift action
and lawmakers are striving to get a plan in place by the end of
the week, fearful a delay could send markets reeling. For
details, see [].
Some analysts lauded the government plan and said they
believed that the U.S. Treasury had to act to prevent worsening
turmoil in financial markets.
"(The bailout) significantly improves the odds for a
gradual stabilization and economic recovery ahead," said Marco
Annunziata, chief economist at UniCredit Markets & Investment
Banking in London.
"The huge size of the plan and its flexibility should
reassure investors that the Treasury has both the firepower and
the discretion needed to effectively address the problem. Its
determination has already been proved beyond doubt."
He did acknowledge that the dollar could come under further
pressure on concerns about the increase in public debt. But he
said the improvement in the U.S. macroeconomic and financial
outlook will dominate, supporting a moderate dollar
strengthening over the next 15 months.
Adding to the list of significant developments following
the Lehman meltdown, Goldman Sachs and Morgan Stanley were
granted approval on Sunday to become banking holding companies
regulated by the U.S. Federal Reserve, enabling them to take
deposits and gain easier access to financing as they fight for
survival amid the financial market turmoil. []
(Additional reporting by Veronica Brown; Editing by Tom Hals)
