By Rika Otsuka
TOKYO, March 14 (Reuters) - The dollar hit a record low
against the euro and fell back towards a 12-year low versus the
yen on Friday as rumours of more hedge fund failures stoked
concern about damaged credit markets and drove Asian stocks
lower.
The dollar was also beaten down after data showing a surprise
drop in U.S. retail sales for February, which deepened worries
that the economy had slid into a recession.
Investors have dumped the dollar on doubts about the Federal
Reserve's ability to stem a broadening crisis in the massive U.S.
mortgage bond market, which is tightening credit conditions and
offsetting its efforts to help the economy by slashing rates.
Among the hedge fund victims this week, Carlyle Capital Corp
<CARC.AS> said it expected its lenders to seize its remaining
assets after failing to reach a deal with creditors. Drake
Management told investors it was considering liquidating all
three of its hedge funds with $5 billion of assets.
"Investors would be more surprised if they don't see more
failures at hedge funds or even some smaller financial firms
because the credit problems have worsened that much," said
Tsutomu Soma, senior manager at the foreign assets department at
Okasan Securities.
A fall in Asian stocks also boosted the yen, which benefits
from heightened investor caution. Tokyo's Nikkei share average
<> fell 1.5 percent.
The dollar fell 0.4 percent from late U.S. trade to 100.30
yen <JPY=> and sank as low as 99.84 yen <JPY=>, close to the
12-year low of 99.77 yen hit on Thursday. So far this year, the
dollar has shed 10 percent against the yen.
Thursday's tumble took the dollar below the 100 yen mark for
the first time since late 1995, prompting Japanese officials to
express worries about the pace of the yen's surge.
Policymakers including Finance Minister Fukushiro Nukaga and
Economics Minister Hiroko Ota said on Friday that excessive
currency movements are undesirable, but that recent currency
moves reflect dollar weakness rather than yen strength.
An influential ruling party lawmaker in Japan said on Friday
it would be difficult to intervene alone in foreign exchange
markets, adding to views that Japan is unlikely to undertake
yen-selling intervention to help protect the country's exporters.
[]
Analysts said the dollar could fall as low as 98 yen and even
95 yen was possible in coming weeks.
The euro hit a fresh peak of $1.5652 but then retreated to
$1.5631 <EUR=>, little changed.
The market showed little reaction to U.S. Treasury Secretary
Henry Paulson saying twice on Thursday that a strong dollar was
in the national interest. []
WRITEDOWN RELIEF?
Standard & Poor's said on Thursday that subprime writedowns
could reach $285 billion but noted that the end of the writedowns
"was now in sight" for large financial institutions, which also
helped U.S. stocks to rebound sharply. []
Kengo Suzuki, a currency strategist at Shinko Securities,
said the rating agency's opinion had eased some worries about the
financial system's health.
But Suzuki said investors would remain cautious until the
market sees quarterly earnings reports from major U.S. investment
banks.
Major U.S. investment banks such as Goldman Sachs <GS.N>,
Lehman Brothers <LEH.N>, and Bear Stearns <BSC.N> are scheduled
to report first quarter earnings next week.
The dollar's sharp slide came after the Fed expanded the
amount of Treasury securities it lends to investment banks and
accept a wider array of mortgage debt as collateral, trying to
alleviate the sell-off in mortgage securities.
The latest strains in financial markets and signs of a
shrinking economy have investors bracing for more hefty Fed rate
cuts this year.
Investors now see a 90 percent chance of another 75 basis
point rate cut to 2.25 percent at the Fed's meeting next week.
(Additional reporting by Satomi Noguchi; Editing by Edwina
Gibbs)
