* Dollar rules as panic reigns, Wall Street tumbles
* Euro falls as ECB cuts rates, lowers growth forecast
* BoE cuts rates, announces asset purchases, pound slips
(Recasts, updates prices, adds comment, changes byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, March 5 (Reuters) - The dollar firmed against
most currencies on Thursday, as fear gripped the market after
stocks dropped amid worries about General Motors and the fate
of U.S. banks, attracting bids for the greenback as a safe
haven.
The U.S. currency, however, fell against the yen, after
earlier touching a four-month high near 100 yen, temporarily
re-establishing its link with the stock market's performance.
The pair's correlation with equities broke down recently
as investors sold the yen despite slumping stocks, as Japan's
economic recession weighed on market sentiment.
But weakness in U.S. stocks overshadowed interest-rate
cuts by the Bank of England and European Central Bank earlier,
which also helped push the euro and sterling lower versus the
dollar. See [].
"High risk aversion is once again the day's theme, with
stocks falling, which has kept the dollar firm," said Brian
Dolan, chief curreny strategist, at Forex.com in Bedminster,
New Jersey.
"Plus, we've got more bad news coming tomorrow with the
non-farm payrolls report," he said, adding that it's hard to
see any silver lining for the economy right now.
In early afternoon trading, the euro fell 0.7 percent to
$1.2552 <EUR=> after earlier hitting session lows at $1.2483.
But the dollar fell 0.8 percent to 98.33 yen <JPY=> as
traders took profits after the greenback's earlier rise to
99.67 yen, its highest level since early November.
Worries about Japan's economy, which contracted sharply in
the fourth quarter as exports plummeted, are expected to limit
yen gains, though. Brian Kim, a currency strategist with UBS
in Stamford, Connecticut, said he expects the dollar to renew
its assault on 100 yen in the days ahead.
CHINA DISAPPOINTMENT
Markets were also disappointed that Chinese Premier Wen
Jiabao, in his annual speech to the National People's Congress
overnight, did not make an announcement about adding to the
original 4-trillion-yuan stimulus package introduced in
November. See [].
"That dampened market sentiment overall," Forex.com's
Dolan said.
Global markets had soared while the dollar had fallen
versus the euro on Wednesday on speculation Wen would add to
the stimulus plan unveiled in November.
Earlier in the session, the euro dipped below $1.25 after
the ECB cut rates by a half-percentage point to a record low
and said the 16-nation euro-zone economy may shrink up to 3.2
percent in 2009.
ECB President Jean-Claude Trichet did not rule out
additional moves on interest rates, suggesting borrowing costs
may yet fall below their current 1.5 percent.
Sterling fell 0.2 percent to $1.4130 <GBP=> after the Bank
of England cut interest rates to a record low and said it
would start buying 75 billion pounds ($106 billion) of assets
to boost the UK economy.
Unlike the BoE, the ECB did not give any clear hints about
quantitative easing plans, but Trichet's warning that rates
could still fall further kept pressure on the common
currency.
With the ECB and BoE rate decisions out of the way,
analysts are now focusing on the U.S. non-farm payrolls report
due on Friday. Analysts are expecting U.S. job losses of
648,000 in February, according to a Reuters poll, with some
forecasting job cuts as high as 800,000.
Yet some analysts such as Kathy Lien, director of FX
research at GFT, think the market could be up for a positive
surprise on the jobs report. Lien said the level of job losses
could be less than 600,000.
She cited the rebound in the employment component of the
service sector index provided by the Institute for Supply
Management.
"Over the past 10 years, there has been an 82 percent
positive correlation between non-farm payrolls and the
employment component of the service sector report," she said.
(Additional reporting by Steven C. Johnson; Editing by Jan
Paschal)
