* Dollar gains; but headed for biggest weekly fall in 24
yrs
* U.S. Treasuries steady; trading thinned by Tokyo holiday
* Asian stocks retreat; heading to second weekly gain
* Oil, gold pare back after recent rallies
(Updates with latest Asian prices; European open)
By Rafael Nam
HONG KONG, March 20 (Reuters) - The U.S. dollar edged
higher on Friday but still headed for its biggest weekly fall
in 24 years on investor fears that it will lose its status as
the world's reserve currency, while oil prices ceded ground
after a recent rally.
U.S. Treasuries were steady in Asian trade after yields on
Wednesday recorded their biggest single-day drop since the 1987
market crash on the Federal Reserve's surprise announcement it
will purchase $300 billion in longer-dated U.S. government
debt.
Asian stocks fell but looked set to gain for a second
consecutive week -- marking their best back to back weekly
gains since mid-December -- as the Fed's plan to inject a
combined $1.15 trillion into the U.S. financial system improved
battered confidence in banks.
European shares were also set to fall as recent gains
appeared to run out of steam.
The Fed this week tackled head-on the woes afflicting the
world's top economy but the approach also creates
uncertainties, mainly in the form of a weakening dollar and
prospects of surging inflation once the economy starts
recovering.
"This is a historic moment, the start of debasement of the
world's reserve currency, and it feels to many participants
that in the grand sweep of history we are witnessing the end of
'Rome' on the Potomac," said Alan Ruskin, a RBS strategist in
Greenwich.
The Fed's massive expansion of its balance sheet could lead
to an oversupply of the U.S. dollar and erode the safe-haven
appeal that just earlier this month had sent the currency to a
three-year high against a basket of currencies, analysts said.
With Tokyo markets closed for a public holiday, the U.S.
dollar index <.DXY> gained 0.3 percent to 83.294, after falling
as far as 82.631 on Thursday to mark a 10-week low.
The dollar is still headed for a loss of around 5 percent
for the week against the basket of major currencies -- the
steepest fall since 1985 when big economies agreed to a formal
depreciation of the dollar in the Plaza Accord.
"U.S. dollars will be flooding the world as the printing
presses work overtime," said Stephen Koukoulas, a strategist at
TD Securities in London in a note to clients.
"Bye bye U.S. dollar. Sell sell U.S. dollar!"
The fall in the dollar has sent the euro to its biggest
weekly increase since its inception in 1999. On Friday the euro
was resting at $1.3655 <EUR=>, having climbed to about a
two-month peak of $1.3737 in New York.
The New Zealand dollar was the biggest beneficiary of the
dollar's woes and the revival of risk appetite, surging 6.5
percent on the week -- on track for its best week since the
currency was floated in 1985. The kiwi was at $0.5570 <NZD=D4>.
The spectre that central banks will overdo their fight
against falling prices, causing a big comeback of inflation, is
another concern.
The Fed's aggressive and unconventional policies have again
pushed the central bank's balance sheet above $2 trillion,
according to data released on Thursday. []
U.S. Treasuries steadied in Asian trade after yields
dropped by the most in nearly 22 years after the Fed's
decision.
The 10-year yields were steady at 2.61 percent <RTRTSY1>,
down sharply from 3.01 percent just before the Fed announced
its new plans on Wednesday and 2.90 percent at the end of last
week.
Two-year yields <US2YT=RR> were holding at 88 basis points,
compared to 1.03 percent before the Fed's move.
The MSCI index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> lost 1 percent on Friday though the index is
headed for its second consecutive weekly gain, bringing its
advance for the month of more than 9 percent.
Though regional banks have gained during that period --
with Australia and New Zealand Banking Group <ANZ.AX> up 18
percent and South Korea's Shinhan Financial Group <055550.KS>
up 22 percent over the past two weeks -- there is plenty of
concerns.
For export-dependent Asia, chief among them is the status
of global trade, while falls in the dollar could spark gains in
local emerging currencies just when manufacturers in the region
are facing a bleak prospect.
The global economy will shrink as much as 1 percent this
year -- its first contraction since World War Two -- the
International Monetary Fund warned on Thursday, urging quick
action to deal with problem assets on banks' balance sheets.
[]
Asian stock indexes posted mixed performances, with shares
in Seoul <>, Shannghai <> and Singapore <.FTSTI>
posting gains. However, stocks in Australia <>, Hong Kong
<>, Taiwan <> and India <> fell.
Prices for commodities rallied this week as the weakening
dollar made them cheaper for overseas investors, while others
looked for a hedge against potential inflation.
Still, oil prices <CLc1> dipped 57 cents to $51.04 a barrel
after on Thursday surging more than 7 percent.
Gold <XAU=> eased to $956.40 an ounce from New York's
notional close of $958.60 as dealers in China and Southeast
Asia booked profits after the yellow metal hit on Thursday its
highest in nearly three weeks.
