* Lehman files for bankruptcy protection
* Risk aversion rises with financial sector fears
* Yen set for biggest daily gain in more than 6 years
* Dollar down 2.6 percent at 105.14 yen
(Updates prices, add comments, previous SINGAPORE)
By Ian Chua
LONDON, Sept 15 (Reuters) - The yen looked set on Monday for
its biggest daily gain since early 2002 while the dollar slumped
as concerns mounted over the stability of the U.S. financial
system after Lehman Brothers <LEH.N> filed for bankruptcy.
Worries the U.S. banking problems will spread to Europe kept
the euro from making strong gains against the dollar.
Bank of America has agreed to buy Merrill Lynch and the
Federal Reserve will accept stocks in exchange for cash loans
for the first time ever.
"The fear of an absolute dollar collapse this morning has at
least been temporary averted. For traders, it's a case of
keeping the tin hat on at least until the Fed (policy) meeting
tomorrow," said Jeremy Stretch, strategist at Rabobank.
"The next question is: are we going to continue seeing a
U.S. centric financial sector meltdown or are we going to see
something broader ... Obviously that might act as a catalyst for
preventing further dollar falls."
At 0800 GMT, the dollar was down 2.6 percent against the
Japanese currency at 105.14 yen <JPY=> -- the biggest one-day
percentage fall since early 2002 -- while the euro <EURJPY=>
dropped 2 percent to 151.32 yen. The euro <EUR=> rose 0.5
percent to $1.4305, but was off an early high of $1.4479.
Seen also as a safe-haven, the Swiss franc powered higher
against the dollar, which fell 1.6 percent to 1.1126 francs
<CHF=>.
"What we're seeing is a rise in risk aversion because nobody
really knows if there is a systemic problem in the U.S.
financial system," said Lutz Karpowitz, forex strategist at
Commerzbank.
"So of course, there is a lot of pressure on the U.S. dollar
... it's bad news for the U.S. dollar so far. It's not really
clear what the Fed will do."
The uncertainty was so high that major central banks around
the world including the European Central Bank, Bank of England
and Bank of Japan said they stood ready to help soothe markets.
There is also speculation that the Fed, which holds its
regular policy meeting on Tuesday, may cut interest rates again.
Rate sensitive Fed funds futures are pricing in a 78 percent
chance of rates falling to 1.75 percent from 2.0 percent at the
September meeting. <FEDWATCH>
European stocks tumbled in early trade while U.S. stock
index futures pointed to a sharply lower Wall Street open.
Lehman Brothers Holdings filed for bankruptcy protection on
Monday after trying to finance too many risky assets with too
little capital, making it the largest and highest-profile
casualty of the global credit crisis. []
Underscoring the dire situation in the U.S. financial
sector, 10 of the world's biggest banks have committed to
establish a $70 billion borrowing facility to bolster worldwide
liquidity and reduce volatility in what they called an
"extraordinary market environment." [].
Wall Street even arranged a rare emergency trading session
on Sunday to allow dealers in the $455 trillion derivatives
market to reduce their exposure to Lehman, though turnover was
said to have been light.
Bill Gross, head of bond fund Pimco, told Reuters before
Lehman's announcement that a bankruptcy filing could set off a
wave of position unwinding around the globe.
"It appears that Lehman will file for bankruptcy and the
risk of an immediate tsunami is related to the unwind of
derivative and swap-related positions worldwide in the dealer,
hedge-fund and buyside universe," Gross said.
(Editing by Ruth Pitchford)
