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Dollar fizzles as stocks slump

NEW YORK: Weighed down by slumping U.S. stocks, the dollar fell against most other major currencies on Friday after an early show of strength faded away.

Traders said the dollar lost altitude against the euro, yen and Swiss franc when New York trading got underway and dealers realised there was little chance of pushing the U.S. currency to fresh highs before the weekend.

"The euro broke below a key support level (at 98.25), but it looks like people couldn't stand the heat and got out of the kitchen," said John Hazelton, currency trader at PNC Bank.

"People were also keyed up on taking out 110 in dollar/yen but that's also deflated. Obviously the equity market is not helping matters."

For days, currency dealers had shrugged off weakness in U.S. blue chip stocks, focusing instead on the booming high-tech sector where the Nasdaq index set another record on Thursday.

But when technology shares led by Microsoft Corp. MSFT.O pulled down the major U.S. stock indices on Friday, currency dealers began to worry anew.

The Dow Jones industrial average closed down 218 points, while the technology-heavy Nasdaq was down 90 points -- both down some 2 percent on the day.

The notable exception in currency markets was the British poundGBP. It ended down more than 1 percent against the dollar as weaker than expected British industrial production data suggested that British interest rates may have peaked, bruising the currency's appeal to investors.

During the early part of the trading session, investors' faith in America's robust economy and concerns about growth in Europe and Asia encouraged dollar buying, traders said.

The greenback JPY had shot to a five-month high at 109.76 yen during European trading, just shy of the 110 yen level which traders say is key to new gains.

But it fell back from that level and by late afternoon the dollar had fallen back a full yen from that peak to stand some 0.40 percent below Thursday's closing rate.

Against the euroEUR, the dollar traded a touch weaker, having given up earlier gains of nearly 0.40 percent. the euro was also 1.25 percent higher against the pound, and traders said volatile moves in that trading pair had contributed to the euro's rebound against the U.S. currency.

The dollar also gave up 0.25 percent against the Swiss franc CHF, after an early upswing.

"It is tough to explain today's movements. I'll call it a traders' kind of day where the currency moves up and then down without any real news," said Sanwa Bank senior trader Jeff Yu.

The slide in the dollar and the equity markets followed the release of U.S. retail sales data, which analysts said pointed to more Federal Reserve credit tightening.

January sales were weaker than expected, rising 0.3 percent, but December's number was upwardly revised to show a 1.7 percent gain. While higher interest rates often benefit a currency by attracting new capital to a country, analysts said they also could harm a currency if interest-rate sensitive stock markets were hit.

Traders said they were still pondering Europe's growth potential, one week after the European Central Bank raised interest rates by a quarter point to 3.25 percent to help tackle fresh price pressures.

The euro showed little reaction when German retail sales rose only 0.8 percent in real terms on the year in December after soaring 1.7 percent in November and German consumer price data for January was revised down to 1.6 percent.-Reuters