The Dollar fell for fifth day in Six

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09/18 09:29 Dollar Weakens on Concern Recession, Stock Losses Are in Store By Geraldine Ryerson-Cruz

New York, Sept. 18 (Bloomberg) -- The dollar fell against the yen and Swiss franc for a fifth day in six as concern mounted that the world's largest economy will slide into recession and that U.S. stocks will decline further.

The U.S. currency dropped to 117.38 yen, from 117.82 yesterday. It sank to 1.6018 Swiss francs from 1.6044, and was down 5.4 percent from before terrorists struck New York and Washington a week ago. The dollar traded at 92.42 U.S. cents per euro, little changed from 92.47 cents yesterday and within a cent of the six-month low of 93.31 cents reached yesterday.

Traders said the dollar will be sold further if U.S. stocks sink again. Shares plunged yesterday in the first trading day since the attacks. The Dow Jones Industrial Average had its biggest-ever decline in points, losing 684.81, or 7.1 percent. The Nasdaq Composite Index dropped 6.8 percent, and the S&P 500 index declined 4.9 percent.

``If stocks continue to fall, there'll be a flight back into the euro again,'' said Karl Halligan, chief trader at the New York branch of CIC Bank, France's No. 5 bank. ``The dollar will play very much off the equity markets in the U.S. today.''

The U.S. relies on foreign capital to sustain the dollar and the currency may decline if international investment dwindles, said Michael Lewis, a strategist at Deutsche Bank in London.

Investors are also waiting to see what steps the U.S. will take in retaliation for last week's terrorist acts, said Steve Barrow, a strategist at Bear Stearns International Ltd. in London.

The attacks, which destroyed the World Trade Center in New York and damaged the Pentagon in Washington, may lead to military reprisals that hamper economic growth, investors said. The U.S. economy expanded at its slowest pace in eight years in the second quarter, and the effect of the attacks on consumer confidence may cause a recession.

`Drawn-Out Campaign'

``The risk for the U.S. economy is clearly that this is a long, drawn-out campaign with no easy enemy to fight,'' said Tony Robinson, chief investment officer at Attica Asset Management in London, which has about $200 million of assets. ``We had changed our dollars into euros already, and, obviously, we're keeping that position now.''

Robinson expects the U.S. economy to contract during the third and fourth quarters.

Major currencies have benefited as investors sought a haven for their money, analysts said. Investors typically keep their money at home in times of crisis, which may weigh on currencies of countries such as the U.S. that have current-account deficits.

The dollar was little changed after a report showed U.S. consumer prices rose less than expected in August, leaving the Federal Reserve room to cut interest rates without accelerating inflation.

Fed policy makers lowered the benchmark lending rate 50 basis points in an unscheduled decision yesterday, to 3 percent, to shore up investor and consumer confidence before U.S. stock markets opened for the first time since the attacks. The Fed had already cut rates seven times this year to spur the economy.

The European Central Bank matched the Fed's move yesterday in a bid to spur growth, and central banks in the U.K., Canada, Switzerland, Japan, Sweden, Denmark, as well as Taiwan's Central Bank of China and the Hong Kong Monetary Authority, have also lowered borrowing costs.

-- Guy Daley (guydaley1@netzero.net), September 18, 2001


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