* Dlr hits 13-1/2 yr low vs yen, US Senate rejects bailout
* Yen gains broadly on risk aversion, stocks tumble
* Dollar index on track for worst week since 1995
(Changes byline, dateline; previous LONDON; adds comment,
updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, Dec 12 (Reuters) - The dollar plunged to its
lowest in 13-1/2 years against the yen on Friday, as the U.S.
Senate's failure to agree on a bail-out for troubled U.S.
automakers sharply diminished risk appetite and stoked demand
for the low-yielding Japanese currency.
U.S. talks on a $14-billion rescue package for the stricken
sector collapsed late on Thursday, heightening global recession
fears and fueling a flight from risky assets such as equities
and emerging markets. For details see [].
The dollar tumbled to 88.1 yen <JPY=> ,according to
electronic trading platform EBS, but trimmed losses as the
pair's break through the closely watched 90 yen region had
spurred speculation Japanese authorities may consider
intervening to stem further yen strength.
"The environment has become challenging for the dollar,
with the collapse of the auto deal the big driver overnight,"
said Shaun Osborne, chief currency strategist at TD Securities
in Toronto.
"So risk appetite has come off and boosted the yen. And
perhaps people are looking at the dollar and it's not looking
great because of the U.S. economy's low growth and low interest
rates. We are perhaps looking at the cusp of a big sell-off in
the dollar."
Analysts said that demand to pull out of risky positions
remained high, which battered higher-yielding currencies like
the Australian and New Zealand dollars against the yen. They
added that the yen would remain a big beneficiary of such
moves.
"The risk aversion trade is the most powerful force these
days, and this has led to a drastic unwind in carry trade and
repatriation flows back into Japan," said Marco Annunziata,
global chief economist at Unicredit in London.
"This will continue, at least in the short term."
INTERVENTION RISK
In early New York trading, the dollar traded 1.4 percent
lower on the day at 90.38 yen. It fell to just above 88, the
lowest since July 1995. The dollar's all-time low against the
yen was at 79.75, hit in 1995.
The greenback did trim losses after the White House said it
may have to step in to avert a failure of the U.S. auto
industry. [].
But with the dollar at these low levels versus the yen,
currency traders are on high alert for any intervention from
the Japanese Finance ministry.
Japan has a long history of trying to stem yen strength by
intervening to buy dollars, but it has stayed out of the market
since a 35 trillion yen ($382 billion) campaign over 15 months
ended in March 2004.
The Ministry of Finance has gradually moved away from heavy
intervention because that last campaign had mixed results.
The euro <EURJPY=R> fell 1.3 percent to 120.87 yen, while
the Australian dollar tumbled 2.8 percent to 59.63 yen
<AUDJPY=R>.
The euro <EUR=> was little changed at $1.3356, while
sterling <GBP=> traded 0.3 percent lower at $1.4986. The
Australian and New Zealand currencies also fell against the
dollar.
But dollar gains against those currencies were limited as
some in the market speculate that repatriation flows in the
U.S. currency may be drying up, while traders take profits on
the dollar's dramatic gains in recent months.
"I think risk aversion still dominates trades here, but the
dollar is no longer benefiting from it," said Matt Esteve, a
foreign exchange trader at Tempus Consulting in Washington.
"Investors are still flocking to the yen with the Japanese
banks obviously a little bit better insulated from this global
downturn than the American banks and definitely the European
banks," he said.
Against a basket of currencies <.DXY>, the dollar is set
for its worst weekly performance since 1995, last down 3.9.
percent on the week.
U.S. data on Thursday showing falls in producer prices and
retail sales for November hardly made a dent on the dollar,
suggesting that the currency market has priced in much of the
weakness in the world's largest economy. For reports on the
data, see [] and [].
(Additional reporting by Naomi Tajitsu in London and WanFeng
Gertrude Chavez-Dreyfuss; Editing by Chris Reese)
