(Recasts, updates prices, changes byline, dateline, previous
LONDON)
By Lucia Mutikani
NEW YORK, March 3 (Reuters) - The yen rallied on Monday as
rising risk aversion prompted investors to dump risky assets
such as stocks and high-yielding currencies, while fears of a
steeper U.S. rate cut knocked the dollar to record lows.
This came as billionaire investor Warren Buffett told CNBC
that the deal to take over reinsurance of $800 billion
municipal bonds was no longer on the table.
Escalating fears of a recession in the United States from
the credit crisis fallout hammered global stocks and sent the
dollar tumbling to a record low against a basket of rival
currencies for the fifth trading day in a row on Monday.
"Risk aversion is partly the theme as shown in yen and
Swiss franc strength as the market buys low yielders," said
Marc Chandler, senior currency strategist at Brown Brothers
Harriman in New York.
Low yielding currencies such as the yen and the Swiss franc
tend to attract flows during periods of uncertainty as the low
interest rates reflect the capital surplus of their respective
countries.
The dollar fell to a record trough of 1.0308 francs <CHF=>
and weakened more than one percent to a three-year low of
102.62 yen, closing in on the psychological 100 yen <JPY=>
level last breached in late 1995.
In New York morning trade, the dollar was around 103.17
yen, down 0.6 percent on the day. It fell 0.3 percent to 1.0378
Swiss francs.
The euro also weakened against low-yielding currencies,
hitting two-week lows at 155.95 yen <EURJPY=> and 1-1/2 year
troughs at 1.5700 francs <EURCHF=>.
The dollar's trade-weighted index against six major
currencies dropped to 73.445 <.DXY>, the lowest since it was
created in 1973. The euro was up 0.1 percent at $1.5196 <EUR=>,
having earlier stopped one tick short of a record high of
$1.5238 hit last Friday, according to Reuters data.
"The market has also shifted towards thinking that there is
more chance of getting 75 basis points from the Fed later this
month," said Chandler.
Short-term interest rate futures were showing a 72 percent
chance of the Fed lowering its benchmark overnight lending rate
by 75 basis points at its March 18 meeting.
The fed funds rate target is currently at 3 percent after
being reduced by 2.25 percentage points since mid-September.
Data later in the session is expected to show the U.S.
manufacturing sector slipping into contraction territory in
February, with the Institute for Supply Management's index seen
falling to a near-four year low of 48.0.
In contrast, euro zone data showing that annual inflation
remained at a record high of 3.2 percent last month backed the
argument that upwards price pressures could deter the European
Central Bank from cutting interest rates in the near term.
"It's a semi-decoupling story where we have the U.S. data
looking really worse and worse, and elsewhere the data is not
weak enough to cause any dollar strengthening, while inflation
is keeping the European Central Bank in an (on-hold) stance on
rates," said John Hardy, FX strategist at Saxo Bank.
"All the fundamentals are there for keeping the move (in
the euro) going for now on this big break above $1.50."
News that Canada's economy grew at a slower-than-expected
pace in the fourth quarter pushed the dollar up 0.6 percent
against the Canadian dollar to C$0.9898 <CAD=>.
Data showed Canada's annualized gross domestic product
growth was 0.8 percent in the fourth quarter. Markets expected
Canada's GDP to show growth of 1.1 percent.
(Additional reporting by Toni Vorobyova in London, Editing
by Chizu Nomiyama)
