NEW YORK (MarketWatch) -- The U.S. dollar traded mostly lower against other major currencies, as U.S. stocks fell sharply and Japan's economy slipped into recession, heightening fears about a global economic slowdown.
The dollar index , a measure of the greenback against a trade-weighted basket of six major currencies, fell back to 86.96 from around 87.392 in North American activity late Friday.
The euro rose to $1.2643 against the dollar from around $1.2596.
The dollar also lost ground to the yen, trading at 96.68 yen in recent action.
"Signs of stability in the U.S. manufacturing sector have failed to turn around the market's risk appetite," Kathy Lien, director of currency research at GFT, said in a note.
"Although the U.S. dollar has weakened marginally against all of the major currencies, if U.S. stocks continue to sell off, we could see the dollar regain strength," Lien said.
On Wall Street, U.S. stocks fell sharply, with the Dow Jones Industrial Average dropping 200 points. See Market Snapshot.
Output of the nation's factories, mines and utilities partially rebounded in October from September's sharp weather-related slump, the Federal Reserve reported Monday.
Industrial production increased 1.3% in October after falling a revised 3.7% in September, which was the biggest decline in 60 years.
Despite October's gains, the manufacturing sector is mired in a recession. Industrial production was down 4.1% compared with a year earlier. See Economic Report.
G20 meeting
A weekend meeting of leaders from the world's top developed and emerging economies had little impact on currency markets Monday, strategists said.
Fears over the depth of a global economic slowdown and ongoing uncertainty over the financial sector continued to hang over equity markets and weigh down risk appetite in the wake of the weekend summit of leaders from the Group of 20 nations.
The summit saw leaders agree to take "whatever further actions are necessary" to stabilize markets, while opening the door to broader regulation of the financial sector. See full story.
In the end, markets viewed the meeting as "long on rhetoric and short on substance," said Daragh Maher, currency strategist at Calyon Bank.
But there was little expectation that the meeting would produce a dramatic, instant solution to economic and financial woes, he said.
Japanese recession
Japanese gross domestic product shrank 0.1% in the July-September period. It marked the second consecutive quarterly decline, meeting a commonly used definition of a recession, as falling overseas demand for the nation's goods hurt its export-dependent industries. See full story.
However, Tokyo's Nikkei index erased early losses to end the day higher.
