Dollar Falls on Concern U.S. Bank Bailout Will Strain Finances

The dollar weakened against the euro for a fourth day, the longest sequence of declines since June, on concern a U.S. proposal to buy $700 billion of troubled assets from banks will widen the country's budget deficit.

The U.S. currency also fell versus the yen before reports this week that may show tighter lending rules contributed to a decrease in U.S. home sales and durable goods orders, adding to the case for interest-rate cuts by the Federal Reserve. The dollar dropped to 106.10 yen as of 6:20 a.m. in New York, from 107.45 on Sept. 19.

The U.S. currency fell to $1.4618 per euro, the lowest since Sept. 2, and was later at $1.4608, from $1.4466. The euro traded at 155.03 yen, from 155.46 yen. The dollar also slid against the Swiss franc as two-year Treasury yields declined for the first time in three days on bets the Fed will cut interest rates to revive the economy. The U.S. currency was at 1.0936 francs, from 1.1054.

The yen rose 0.6 percent to 89.04 against the Australian dollar and 1.4 percent versus the New Zealand dollar to 72.99.The yen typically rises when demand for higher-yielding currencies declines, as investors reduce so-called carry trades. In such transactions, traders get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the two. The risk is that currency market moves can erase those profits. The Bank of Japan's benchmark rate of 0.5 percent compares with 4.25 percent in Europe, 7 percent in Australia and 7.5 percent in New Zealand.

The Australian and New Zealand dollars traded near the highest levels in more than two weeks versus the U.S. currency amid speculation a U.S. plan to ease credit-market losses will spur demand for higher-yielding assets. Australia's currency traded at 83.08 U.S. cents at 4:48 p.m. in Sydney from 83.40 cents in New York on Sept. 19., New Zealand's dollar reached 69.19 U.S. cents, the highest since Sept. 2, before trading at 68.55 U.S. cents from 68.90 cents in late New York trading on Sept. 19.

The pound declined for a third day against the euro and dropped versus the dollar after an industry report said U.K. house prices slid a fourth month in September, adding to evidence Britain has entered a recession.

Russia's ruble was little changed against the dollar and the euro. The managed currency was at 25.2735 per dollar by 10:40 a.m. in Moscow, from 25.2812 at the end of last week, when it gained 1 percent. The ruble traded at 36.6234 per euro, compared with 36.5772 on Sept. 19. It slid 0.8 percent versus the common currency last week.

India's rupee
headed for the biggest two-day advance in a decade on optimism investors will return to emerging markets after the U.S. government announced a plan to contain financial-market turmoil. The rupee rose 0.8 percent to 45.4525 per dollar at the 5 p.m. close in Mumbai, adding to the 1.4 percent gain on Sept. 19, according to data compiled by Bloomberg.

Chinese yuan rose against the dollar on speculation China will sustain only a limited impact from the global credit crisis. The yuan rose 0.12 percent to 6.8265 versus the dollar as of 10:20 a.m. in Shanghai, from 6.8350 on Sept. 19,,
9/22/2008 5:56:24 AM