FOREX-Dollar plunges as U.S. financial crisis deepens

                                
 By Rika Otsuka
                                
 TOKYO, March 17 (Reuters) - The dollar plunged across the
board on Monday as the spreading U.S. financial crisis led to
JPMorgan Chase <JPM.N> acquiring stricken investment bank Bear
Stearns <BSC.N>, stirring fears that more financial firms could
become casualties.
                                
 The Federal Reserve took more emergency measures to stem the
fast-spreading financial crisis, cutting its discount rate on
Sunday and opening up discount window lending to major investment
banks, a tool not used since the Great Depression.
[ID:nN16640873]
                                
 As the dollar slid 3 percent against the yen at one point to
its lowest since 1995, investors became more convinced that the
Fed and other major central banks may have to conduct coordinated
dollar-buying intervention to stem the sell-off.
                                
 "The speed of the slide in the dollar/yen is so rapid that
U.S. action alone can no longer stop the dollar's downward
trend," said Koichi Ogawa, chief portfolio manager at Daiwa SB
Investment. "The time is ripe for coordinated intervention by
U.S., European and Japanese authorities."
                                
 The dollar later trimmed some losses after Japanese Finance
Minister Fukushiro Nukaga stepped up his verbal warnings on
Monday, saying he is watching currency market moves in
cooperation with authorities in the United States and Europe.
                                
 Investors have dumped the dollar on doubts about the Fed's
ability to contain the deepening credit market turmoil, which has
hobbled its efforts to help the economy by slashing rates and
raised the threat of a protracted U.S. economic recession.
                                
 Traders said the dollar was suffering from an almost perfect
storm of negative factors: a worsening financial crisis
originating in the United States, unusually aggressive Fed rate
cuts and investors diversifying away from the U.S. currency.
                                
 "Market players are afraid that there will be a second and
third Bear Stearns out there," said Kosuke Hanao, head of forex
sales at HSBC in Tokyo.
                                
 The dollar hit a record low versus the Swiss franc and struck
a 13-year low beneath 96 yen on deteriorating confidence in U.S.
assets from the crisis spawned by the defaults on U.S. subprime
mortgages.
                                
 "The market is totally panicking," said a trader at a big
Japanese bank. "The fact that the Fed had to announce its
emergency steps on Sunday night highlighted the seriousness of
the situation."
                                
 The dollar slide as far as 95.77 yen on trading platform EBS,
down more than 3 percent on the day, before clawing back to 96.8
yen <JPY=>.
                                
 At its lows, the dollar was on track to for its biggest
one-day drop against the yen in a decade. In less than three
months this year, the dollar has already shed more than 13
percent against the Japanese currency.
                                
 The euro hit a fresh peak of $1.5905 on EBS but then
retreated to $1.5850 <EUR=>, up 0.8 percent.
                                
 The dollar dropped as low as 0.9572 Swiss francs, an all-time
low, then rebounded to 0.9715, down 2.7 percent.
                                
 The concerns about the U.S. financial system prompted
investors to shift their funds to safe-haven gold, boosting spot
gold <XAU=> to a record peak above $1,030 per ounce.
                                
 Short-term U.S. Treasury yields fell to five-year lows as
investors see a chance the Fed could slash overnight rates by up
to 125 basis points by the end of its policy meeting on Tuesday.
[US/]
                                
 A single cut of that size would mark one of the biggest in
the modern history of the Fed.
                                
 The fears about the damage from the credit markets and
plunging dollar hit shares, pushing down Tokyo's Nikkei stock
average <.N225> by nearly 4 percent to its lowest since August
2005. [MKTS/GLOB]
                                
 DOLLAR INTERVENTION
                                
 Many market participants are now hoping U.S. authorities will
eventually use public funds to help stabilise stumbling credit
markets, believing that just slashing interest rates and
injecting extra funds in the banking system cannot fix the
problems.
                                
 As investors mulled the possibility of joint intervention,
Nukaga and Chief Cabinet Secretary Nobutaka Machimura said on
Monday that they were worried about excessive exchange rate moves
-- a stepping up of their rhetoric.
                                
 But investors still doubted that Japan would act alone to
limit the yen's gains. Earlier Nukaga had said that Japan was not
preparing to act against the yen's surge.
                                
 "Solo intervention by Japan seems difficult. But given this
market turmoil, the U.S. and Europe could move and conduct
coordinated intervention in the currency market," said a senior
options trader at a Japanese bank in Tokyo.
  (Additional reporting by Satomi Noguchi, Shinji Kitamura and
Akiko Ishiwata)