* Dollar index rises as greenback taps safe-haven flows
* Lehman bankruptcy protection sparks risk aversion
* Yen rallies broadly, U.S. stocks open sharply down
(Recasts, changes byline, dateline, previous LONDON)
By Lucia Mutikani
NEW YORK, Sept 15 (Reuters) - The U.S. dollar rose on
Monday as mounting risk aversion after Lehman Brothers Holdings
Inc filed for bankruptcy protection sparked some safe-haven
flows, while the yen rallied broadly.
Analysts said the greenback, which had dropped in overnight
trade, was also being buoyed by a sharp drop in crude oil
prices to a seven-month low below $100 per barrel and fears
that the U.S. banking problems would spread to other parts of
the world.
"The dollar has increasingly been seen as a safe-haven
currency and it's exhibiting much of the same type of price
action that it exhibited before last August's liquidity crisis
set in," said Michael Woolfolk, senior currency strategist at
Bank of New York Mellon in New York.
"We are seeing cash temporarily moving into the U.S. dollar
amid heightened uncertainty and market turmoil, despite the
fact that much of the turmoil is centered here in the U.S.
financial markets."
Lehman Brothers <LEH.N> filed for bankruptcy protection,
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.
At the same time, the market was also digesting news that
Bank of America <BAC.N> had agreed to buy Merrill Lynch <MER.N>
and the Federal Reserve would accept stocks in exchange for
cash loans for the first time.
In New York morning trade, the ICE Futures dollar index was
last up 0.6 percent at 78.800 <.DXY>. The index, which measures
the dollar's performance against a basket of currencies rose as
high as 79.360 at one point.
The euro <EUR=> slipped 0.2 percent to $1.4197, erasing
early gains which had pushed to $1.4479. Rising risk aversion
pushed the dollar down 1.9 percent against the Japanese
currency to 105.83 yen <JPY=>, the biggest one-day fall since
early 2007, while the euro <EURJPY=> dropped 1.9 percent to
150.40 yen.
Seen also as a safe-haven, the Swiss franc rose against the
dollar, which fell 0.8 percent to 1.1203 francs <CHF=>.
"It's all about risk aversion with the yen outperforming
... not surprisingly, the high yielders are leading the
declines," said Dustin Reid, foreign exchange strategist at ABN
Amro Bank in Chicago.
The high-yielding Australian and New Zealand currencies
fell sharply versus both the U.S. dollar and the Japanese yen.
In Europe, stocks <> fell more than 4 percent and
European credit spreads jumped wider.
U.S. stocks fell sharply in early trade.
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 an 64
percent chance of rates falling to 1.75 percent from 2.0
percent at the September meeting. <FEDWATCH>
(Editing by Tom Hals)
