(Updates prices, adds comment, byline)
By Steven C. Johnson
NEW YORK, May 9 (Reuters) - The dollar fell on Friday as
another round of credit market losses prompted investors to
reduce exposure to risky assets and heightened concern about
the health of the U.S. economy.
The U.S. currency fell sharply against the yen after
American International Group <AIG.N>, the world's biggest
insurer, posted its largest ever quarterly loss and said it
planned to raise $12.5 billion in fresh capital.
That rekindled concern about the U.S. economy, particularly
with crude oil <CLc1> again rising to a record high, and sent
the dollar 0.8 percent lower to 102.94 yen <JPY=>.
On the week, the greenback was down by more than 2 percent
against the Japanese currency, its worst weekly performance in
nearly two months.
AIG's surprising large losses dimmed a growing sense of
financial market optimism. On Thursday, U.S. Treasury Secretary
Henry Paulson said he believed the credit crisis was "closer to
the end than the beginning."
"The mood swings in the market continue to amaze me," said
Jay Meisler, principal of Global-view.com, an online forum for
traders and investors. He said the flow out of high-yield
currencies and into low-yielding ones on Friday "signals a
fresh bout of risk aversion."
The euro also fell 0.2 percent to 159.40 yen <EURJPY=>.
Against the dollar, it rose 0.5 percent to $1.5480 <EUR=> after
hitting a two-month trough below $1.53 a day ago.
The Japanese currency, which also gained on the high-yield
Australian and New Zealand dollars, rises when investors unwind
risky trades that were financed with cheaply-borrowed yen.
The dollar fell 0.9 percent against the low-yielding Swiss
franc, last changing hands at 1.0410 francs <CHF=>. U.S. stocks
also fell, with the Dow Jones Industrial Average closing down
<> nearly 1 percent.
The jump in oil prices to an all-time high also pressured
the dollar lower, knocking 1.2 percent off its value against
the Canadian dollar <CAD=>.
Investors fear surging oil prices will worsen already weak
demand in the United States, the globe's biggest energy
consumer.
TRADE DEFICIT NARROWS, EURO DILEMMA
Data showing the U.S. trade deficit narrowed in March
thanks to a record plunge in the value of imports did little to
lift the dollar on Friday, with investors instead focused on
risk. For more click [].
Euro gains against the dollar were more subdued on Friday,
though the currency did get a boost from expectations that the
European Central Bank will hold interest rates steady at 4
percent.
On Thursday, ECB President Jean-Claude Trichet said
inflation remains his top concern, warning energy and food
costs would lead to a "protracted period" of higher prices.
However, the euro was still almost 4 percent off its record
high versus the dollar set in April as a series of soft data
keeps the euro zone single currency on the back foot.
"For the time being, the euro zone economy is experiencing
the worst of both worlds, higher inflation and slowing growth,"
said Boris Schlossberg, senior currency strategist at
DailyFX.com.
"(The euro is) going to have a hard time climbing back up,
because at this point, the market assumes that, eventually, the
ECB is going to have to begin an easing process."
(Additional reporting by Nick Olivari and Lucia Mutikani;
Editing by James Dalgleish)
