The dollar fell for a third day against the euro on speculation the government will take larger stakes in U.S. banks, adding to signs the credit crisis may deepen the nation’s recession. The dollar headed for its longest losing streak versus the euro this year after the Wall Street Journal reported the government may raise its stake in Citigroup Inc., citing unidentified people familiar with the situation. The yen fell for a fourth day against the euro as speculation the economy will keep shrinking eroded demand for the currency. “This news indicates that the financial crisis in the U.S. is deepening rather than easing,” said Takashi Matsumura, a Tokyo-based economist at Mizuho Research Institute Ltd., a unit of Japan’s second-largest banking group. “The dollar may fall toward 90 yen.” The dollar dropped to $1.2886 per euro as of 2:24 p.m. in Tokyo from $1.2826 late in New York on Feb. 20. It weakened to 92.97 yen from 93.35 late last week. The U.S. currency slid to $1.4503 versus the pound from $1.4433, and declined to 1.1523 Swiss francs from 1.1560. The euro traded at 119.82 yen from 119.68 yen in New York on Feb. 20. Europe’s single currency traded at 88.83 British pence from 88.91 pence, and advanced to 1.4841 francs from 1.4820. Citigroup The U.S. government may end up holding as much as 40 percent of Citigroup’s common stock, while bank executives prefer the stake to be closer to 25 percent, the Journal said. Senate Banking Committee Chairman Christopher Dodd said on Feb. 20 some banks may have to be taken over for “a short time.” His House counterpart, Financial Services Committee Chairman Barney Frank, along with Republican Senator Jon Kyl rejected having the government step in to run banks. Citigroup and Bank of America Corp., which received $90 billion in U.S. aid in four months, each tumbled as much as 36 percent on Feb. 20 on concern the U.S. may take over the banks. The Obama administration in response said a “privately held” banking system is the “correct way to go.” The ICE’s Dollar Index, which tracks the greenback against six major trading partners such as the euro and the yen, declined for a third day, falling 0.4 percent to 86.122. Trade Deficit The yen declined against the euro before a government report this week which economists say will show Japan posted a trade deficit for the fourth straight month. “Japan’s trade balance is worsening, so the yen is losing some of its safe-haven status,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “There is a risk the yen may be sold” to 93.70 versus the dollar and 120 per euro today, he said. The Finance Ministry’s custom-cleared trade balance statistics on Feb. 25 may show Japan logged a trade deficit of 1.18 trillion yen ($12.6 billion) in January, according to a Bloomberg News survey of 26 economists.

Source