Dollar Falls Against Euro

The dollar fell against the euro after the Federal Reserve lent as much as $85 billion to American International Group Inc., prompting investors to sell U.S. government debt.

Japan's currency also dropped versus the euro and the Norwegian krone on speculation an AIG rescue will encourage investors to resume taking out loans in Japan to buy higher- yielding assets elsewhere. The pound fell versus the euro on concern British home-loan provider HBOS Plc may not have access to funding.

The dollar fell 0.6 percent to $1.4215 at 7:45 a.m. in New York, from $1.4129 in New York yesterday. The U.S. currency was at 105.74 yen, compared with 105.65. Against the euro, the yen slid 0.6 percent to 150.27, from 149.33. It touched 147.04 yesterday, the strongest since August 2006.

The yen jumped the most in a decade against the dollar on Sept. 15 as mounting credit-market losses forced Lehman Brothers Holdings Inc. to file the biggest bankruptcy in history, sparking a global stocks rout and a surge in bank loan costs.

The pound weakened versus the euro as HBOS, Britain's biggest mortgage bank, fell as much as 52 percent in London trading. Lloyds TSB Group Plc, the U.K.'s biggest provider of checking accounts, is in talks to buy the lender, according to two people familiar with the situation.

The U.K. currency stayed lower after a government report showed jobless-benefit claims rose in August by the most since 1992 and minutes of the Bank of England's Sept. 4 meeting showed policy makers voted 8-1 to keep the nation's key lending rate at 5 percent. The pound was at 79.53 pence per euro, from 79.26.

The yen fell 0.7 percent to 18.1578 versus the Norwegian krone as the AIG rescue stoked so-called carry trades, in which investors buy higher-yielding assets funded with low-interest- rate loans in countries such as Japan.

The dollar also fell before government reports today that are expected to show the U.S. housing market is deteriorating, adding to evidence of a slump in the world's biggest economy.,
9/17/2008 5:03:55 AM