HONG KONG: The US dollar fell on Friday, on track for the biggest weekly decline since 1985, while oil was pinned near 4-1/2-year lows under $40 a fter plunging overnight on a dismal outlook for energy demand. Tokyo stocks fell 1 per cent ahead of a policy decision by the Bank of Japan, which could follow the Federal Reserve this week in cutting its benchmark rates closer to zero and taking more unconventional action to make commercial banks lend to each other. However, the financial sector still looked shaky, with HSBC shares down 7 per cent on fears about whether Europe's largest lender will raise capital or cut its dividend. The dollar also remained under pressure after the Fed indicated this week it has embarked on quantitative easing, the final option of any central bank in which the financial system is immersed with cheap funds in an effort to revive lending. Prospects of an oversupply of dollars on the market and the belt-busting US fiscal deficit has made dealers dump the currency. "A BOJ rate cut with additional steps may slow down the yen's appreciation against the dollar but the general trend of dollar weakness is likely to continue," said Masato Mori, senior manager at NTT Smarttrade in Tokyo. The dollar, still the world's foremost reserve currency, had served as a haven for investors during the bloodiest months of the financial crisis. A persistent decline could have a big impact on Asian central banks, exporters and companies with dollar-based revenues. The euro was up 0.3 per cent at $1.4255, after having surged overnight to a near three-month high of $1.4720 on trading platform EBS. The euro has gained a stunning 20 cents in the last month as the euro zone's interest rate advantage was expected to hold for a while longer. The dollar was down 0.2 per cent to 89.25 yen and fell as low as 87.13 yen, its weakest in more than 13 years, on Wednesday. An overnight bounce frayed the nerves of traders who are anxious the Bank of Japan could intervene to cap the yen's rise, but no evidence was found to support such a move. The trade weighted dollar is down 4.5 per cent this week, heading for its biggest weekly fall since September 1985, according to Reuters data.

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