* Yen soars across the board, dollar/yen falls below 95
* Treasury's Paulson backs off plan to buy toxic assets
* U.S. stocks tumble 5 percent after Paulson's comments
* Sterling hits 6-1/2-yr low vs dollar, record low vs euro
* For up-to-the-minute market news, click on <FXNews>
(Recasts, adds quotes, changes byline)
By Vivianne Rodrigues
NEW YORK, Nov 12 (Reuters) - The U.S. dollar tumbled
against the yen on Wednesday as investors shunned risky assets
after comments by U.S. Treasury Secretary Henry Paulson
heightened concerns about the economy and sparked a global
sell-off in equities.
Sterling plunged to its lowest in more than six years
versus the greenback and hit a record low against the euro
after the Bank of England warned the British economy will
shrink sharply next year. BoE Governor Mervyn King also
bolstered expectations of further aggressive interest rate
cuts.
"The yen has gotten significantly stronger because global
equity markets are again under pressure. It's a similar trend
to what we've been seeing over the past month. It's really a
flight to quality," said Matt Esteve, a forex trader at Tempus
Consulting in Washington. "As the markets go down, you'll see
the yen continue to strengthen."
U.S. stocks <> extended losses to end around 5 percent
lower after Paulson said he was backing away from buying
troubled mortgage assets using the government's $700 billion
bailout fund. "This is not the most effective way to use TARP
funds," he told a news conference, referring to the Troubled
Asset Relief Program. See [].
Paulson's comments compounded worries about the global
economy, which is facing tough times thanks to the worst
financial crisis in decades. The dollar and yen have performed
strongly in the current environment of extreme risk aversion.
"It looks like Paulson has realized asset prices must be
allowed to clear," said Axel Merk, chief investment officer at
Merk Investments in Palo Alto, California. "But while we agree
that this is the right thing to do, it may be more of a
reflection that his days at the Treasury are almost over."
"Right now, we need clarity. Markets do not function if the
rules change every day," he added.
In late New York trade, the dollar was last down 2.8
percent at 94.97 yen <JPY=>, after falling as low as 94.49 yen,
the lowest since Oct. 28, according to Reuters data.
The yen also soared versus the euro, the pound and the
Australian and New Zealand dollars as investors exited
high-yielding, riskier currencies. The euro fell 2.9 percent to
118.72 yen <EURJPY=> after hitting 118.10.
STERLING STUNG
Sterling <GBP=> dropped almost 3 percent against the dollar
to $1.4942, according to Reuters data, its weakest since 2002,
after the BoE's King said the bank was prepared to cut rates
even more after a stunning 1.5 percentage-point cut last week.
A quarterly BoE report predicted the UK economy will shrink
sharply next year and inflation may fall below 1 percent.
[].
Ashraf Laidi, chief FX strategist at CMC Markets U.S., said
the selling pressure on sterling was also exacerbated by
reports showing unemployment hit a 16-year high and average
earnings growth was the weakest in five years.
"If buying the yen was seen as the path of least
resistance, then selling the pound has been the more popular
trade," he said.
Sterling also fell 2.8 percent against the euro, hitting a
record low of 84.11 pence <EURGBP=>, according to Reuters
data.
The euro <EUR=> fell to a two-week low at $1.2469 against
the dollar before rebounding, and last traded down 0.2 percent
at $1.2487. Analysts said the currency remained under pressure
after data showed euro zone industrial production fell more
than expected in September. [].
Overall, rising risk aversion, a generally weaker tone in
equities and global recession fears will likely continue to
benefit the greenback, analysts said.
"I continue to look for ... an overall risk-averse theme to
be the dominant one," said Dustin Reid, senior currency
strategist at RBS Global Banking & Markets in Chicago. "As
such, I have a difficult time seeing a material U.S. dollar
decline from here."
(Additional reporting by Wanfeng Zhou; Editing by James
Dalgleish)
