* Dollar hits 5-mth low on index, 2-mth low vs yen
* S&P warning on UK's triple-A rating knocks US assets
* Japan's Yosano says not thinking about intervention
* DXY index on track for biggest weekly drop in 2 months
By Rika Otsuka
TOKYO, May 22 (Reuters) - The dollar slid to a five-month low
against a basket of major currencies on Friday after a warning
that Britain's triple-A credit rating could be cut stoked worries
the debt of the world's reserve currency may face the same fate.
Standard & Poor's said on Thursday it could downgrade
Britain's triple-A credit rating, a move that initially hit the
pound but then sparked broad selling of U.S. stocks and bonds on
fears that record U.S. deficits could lead to the same warning.
[]
After hitting five-month lows in the past three days, the
dollar index was on track for its biggest weekly fall since the
Federal Reserve launched its large-scale purchases of U.S.
Treasuries in late March, which slammed the reserve currency on
worries the move could cause an effective devaluation.
Minutes of the Fed's last policy meeting this week showed
officials said they may need to boost such buying of Treasuries.
"S&P gave a clear criteria that a country whose government
debt burden is approaching 100 percent of GDP could have its
rating downgraded. That prompted investors to think they should
not be so optimistic about the credit rating on the United
States," said Hideki Amikura, deputy general manager of forex
trading at Nomura Trust and Banking.
Moody's Investors Service on Thursday said it is comfortable
with its triple-A sovereign rating on the United States, but the
rating was not guaranteed forever. []
The dollar's broad slide took it to a two-month low against
the yen after Japanese Finance Minister Kaoru Yosano said on
Friday the country is not thinking about intervention in the
currency market. []
The remarks came as market players have started to suspect
that Japanese officials may consider intervening to prevent
further yen strength.
The yen's surge to 13-1/2-year peaks against the dollar
earlier this year dealt a heavy blow to the country's big
exporters, but Japan has refrained from intervention.
The dollar index <.DXY>, a gauge of the greenback's
performance against six major currencies, fell as low as 80.210,
its lowest since December and near the 50 percent retracement of
its one-year rally through March this year.
The dollar slipped 0.2 percent from late U.S. trade to 94.15
yen <JPY=> after hitting a low of 93.86 yen on trading platform
EBS, the lowest since December. Dollar buying from Japanese
importers helped limit losses, traders said.
Market players said the dollar is likely to test the low of
93.55 reached in March, which was hit when the dollar plunged on
the Fed's adoption of quantitative easing. If that level is
broken, the dollar may test the 13-1/2-year low near 87.10.
The euro was up 0.2 percent at $1.3916 <EUR=> but pulled back
from a five-month high high of $1.3957 on EBS as speculators
covered short dollar positions ahead of a U.S. three-day weekend.
Sterling was little changed on the day at $1.5850 <GBP=D4>
after rising as high as $1.5898, its strongest since early
November. Despite the S&P statement, the pound is up 4.5 percent
on the week, as traders have come to think that Britain is only
one of many nations facing deep fiscal problems.
U.S. financial markets will be closed on Monday for Memorial
Day holiday, while British markets will also be shut for a bank
holiday.
DOLLAR'S WOES MOUNT
As investors rushed into the safe-haven greenback during the
slide in global stock markets, the dollar index hit a three-year
peak in March.
But as stocks have rallied since then, the dollar has taken a
hit as investors have shifted funds into higher-yielding
currencies and emerging market assets on hopes that the worst of
the severe global economic crisis is over.
That slide has accelerated as a number of key currencies have
crossed the 200-day moving average against the dollar, including
the euro and pound. A cross of the 200-day moving average tends
to coincide with turning points in the dollar.
The perceived threat to the United States' top triple-A
rating has given the dollar another blow this week.
"Now it is worries about the United States that are weighing
on the dollar," said a forex trader at a big Japanese trust bank.
Bill Gross, the co-chief investment officer at bond fund
giant PIMCO, warned that the United States will eventually lose
its top credit rating. []
The fate of troubled U.S. auto giant General Motors Corp
<GM.N> is set to reemerge as a market focus. The Washington Post
said on Thursday the Obama administration is preparing to steer
GM into bankruptcy next week. []
But a source familiar with the situation said the U.S.
Treasury Department has no plans to push GM into a bankruptcy
filing next week and the outcome of GM's restructuring efforts
may not be known until a June 1 deadline. []
"If the situation with GM worsens, it will spark a stock
sell-off that would trigger more dollar selling against the yen,"
said Tohru Sasaki, chief FX strategist at JP Morgan in Tokyo.
(Additional reporting by Satomi Noguchi; Editing by Edwina Gibbs)
