* Dollar index down half a percent <.DXY> at 87.426
* U.S. forecasts $1.75 trillion budget deficit
* Yen hits 3-month low vs dollar, mkt eyes 100 yen
* Sterling rises as bank insurance scheme launched
(Recasts, changes byline)
By Farah Master
LONDON, Feb 26 (Reuters) - The dollar slipped against a
basket of currencies on Thursday as stock markets rallied while
the British pound was boosted after the launch of a bank
insurance scheme for toxic assets.
However, the dollar held its gains against the yen as
worries over the health of the Japanese economy sent the yen to
a three-month low.
U.S. President Barack Obama forecast a $1.75 trillion budget
deficit for the world's largest economy, amounting to 12.3
percent of GDP -- a figure that analysts said could prove dollar
negative.
"In the short term there seems to be some additional concern
over the size of the budget at $1.75 billion," said David Page,
economist at Investec in London.
"The overall outlook for the dollar is to continue to trade
along the line of where sentiment goes, rather than these
numbers. We don't think the Obama budget is going to have much
of an impact on the dollar over the course of the day," Page
said.
The dollar was down half a percent against a basket of
currencies <.DXY> at 87.426 -- reflecting a slight rise in risk
seeking as reflected in stock market gains.
World stocks as measured by MSCI's all-country index rose
0.6 percent on the day to 191.47 <.MIWD00000PUS>, while futures
showed U.S. stocks were set for a positive start.
The euro was up 0.7 percent at $1.2794 <EUR=>.
"Euro/dollar is the best risk-on or risk-off barometer now,
and that's a little bit stronger," said Lee Ferridge, an FX
strategist at State Street Global Markets.
"(U.S. stock) futures are up and the news in the UK this
morning has generally been seen as a positive," he added.
Sterling was up 0.42 percent against a broadly weaker dollar
at $1.4258 after Britain launched a scheme which could end up
insuring more than 500 billion pounds worth of toxic assets in a
bid to get lending in the recession hit economy moving again.
[]
The scheme came after Royal Bank of Scotland unveiled a
bumper 24 billion pound loss. []
Germany's chancellor Angela Merkel said on Thursday that
euro zone states will continue to show solidarity to each other,
her strongest signal that Germany may be prepared to help weaker
members of the bloc. []
SO LONG SAFE HAVEN
Data showing portfolio flows out of Japan last week
underscored the yen's loss of favour as a safe-haven bid, with
many now discussing how far it can fall as technical sell
signals fuel negative yen sentiment.
The yen has shed more than 10 percent since hitting a
13-year high of 87.10 yen per dollar in January, and short-term
speculators have been forced to unwind bets that it would
revisit that level, helping push the currency even lower.
The dollar rose as high as 98.00 yen according to Reuters
data, its highest since mid-November, and was last up 0.12
percent on the day at 97.85 yen.
"We are seeing the yen selling off quite sharply. We are
pencilling in somewhere over 100-110 by mid year", said Page at
Investec.
The euro climbed 0.5 percent to 125.59 yen -- a seven week
high <EURJPY=>.
Bank of Japan board member Tadao Noda said on Thursday the
economy was worsening more than the central bank had forecast in
January. []
The Australian dollar <AUDJPY=R> struck a seven-week high of
63.73 yen, according to Reuters data, after figures showing
Australia's business spending jumped in the fourth quarter.
(Additional reporting by Kirsten Donovan; Reporting by Farah
Master; Editing by Ruth Pitchford)
