(Recasts, updates prices, changes byline)
By Lucia Mutikani
NEW YORK, March 28 (Reuters) - The dollar fell against the
yen on Friday as investors worried that the credit crisis that
has fractured the U.S. financial sector was far from over,
pushing stocks lower.
The drop in U.S. shares and concerns that the credit crunch
would make the funding of current account deficits difficult
took some edge off the British pound and the New Zealand and
Australian dollars.
"It's very difficult, even when equities begin to rally,
for investors to sell the yen aggressively, considering that at
any time you could have (U.S.) banks come out with massive
losses," said Mark Meadows, a currency analyst at Tempus
Consulting in Washington. "The risk is just too much right
now."
The dollar fell to a session low of 99.110 yen <JPY=>. It
was last trading at 99.250 yen, down 0.4 percent on the day,
with U.S. stocks ending down as credit-related worries sank
financial shares.
Adding to investor concerns about the U.S. financial
sector, Oppenheimer & Co analyst Meredith Whitney says
Citigroup Inc <C.N>, Wachovia Corp <WB.N> and other U.S. banks
are likely to announce dividend cuts in April because their
earnings will not support currently scheduled payouts.
Hawkish comments from European Central Bank Governing
Council member Axel Weber and news that German consumer price
inflation unexpectedly accelerated in March further diminished
hopes for ECB interest rate cuts in the near term, keeping the
euro supported.
The euro was last up 0.1 percent at $1.5800 <EUR=>, within
striking distance of last week's historic peak at $1.5904.
CURRENT ACCOUNT DEFICIT A WORRY
The dollar rose against the pound and the New Zealand and
Australian dollars on declining U.S. shares and worries that
the credit squeeze might make the funding of current account
deficits a challenge.
Sterling fell 0.7 percent to $1.9933 <GBP=>, while the New
Zealand dollar dropped 0.8 percent to US$0.7961 <NZD=>. The
Australian dollar dipped 0.2 percent to US$0.9172 <AUD=>.
"The high-yielders are underperforming; maybe the market is
starting to look back at the issue of risk. It's notable that
the riskier currencies in terms of the current account deficits
are underperforming today," said Shaun Osborne, chief currency
strategist at TD Securities in Toronto.
"We are looking for a significant current account deficit
position in the UK," Osborne said.
Analysts said that, while the euro had seen a mild bout of
profit-taking, investors were reluctant to aggressively sell
the single currency ahead of Federal Reserve Chairman Ben
Bernanke's testimony before Congress and March's nonfarm
payrolls report, both next week.
With gains of more than 8 percent since the start of the
year, the euro is still on track for its best quarterly
performance since late 2004, and analysts say further gains
toward $1.60 could well occur.
"There are lots of hurdles for the dollar next week. The
one saving grace for the dollar would be if European data
disappoints. At this point, it's very difficult to bet against
the euro," said Omer Esiner, foreign exchange analyst at Ruesch
International in Washington.
Reports showing a small increase in consumer spending, tame
inflation pressure and a drop in U.S. consumer confidence
boosted the view that the Fed will cut interest rates further
to stimulate the weakening economy. For details, see
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The diverging interest rate paths and signs that the euro
zone -- at least for now -- appears to be weathering the
U.S.-led economic slowdown helped push the euro to record highs
last week.
(Additional reporting by Gertrude Chavez-Dreyfuss)
