RTRS: Dollar gains as AIG rescue news fuels safety buying
The dollar rose against most other currencies on Monday after sources said the U.S. government would pour a further $30 billion into embattled insurer American International Group (AIG.N), fuelling safety buying of the greenback.
The AIG move follows a new rescue plan for Citigroup (C.N), adding to fears that more financial firms may need similar rescue plans, analysts said. Stock markets in Asia fell on concern about the financial sector, while safe-haven U.S. Treasuries rose.
Some said the dollar looked relatively less risky than other major currencies as U.S. authorities were seen to be taking swift action to overcome the crisis in the financial system.
The yen was among the few to climb against the dollar as the currency's sharp rebound late last week from a steep slide worried Japanese exporters and prompted them to sell dollars early to hedge their overseas earnings.
"The market has become increasingly concerned that the need for rescues is broadening to other major U.S. banks after Citigroup and AIG," said Kengo Suzuki, a currency strategist for Shinko Securities.
AIG's board approved a new rescue package on Sunday that includes more lenient terms on an existing government investment in its preferred shares and a lower interest rate on a government credit line, sources familiar with the matter said. [ID:nN01330373]
Details will be announced around 1100 GMT, when AIG is expected to report a fourth-quarter loss of about $60 billion.
The euro fell 0.3 percent to $1.2584 , and lost 0.5 percent against the yen to 122.72 yen , according to Reuters dealing system.
Traders said the euro came under pressure after European leaders rejected a mass bailout of central and eastern European countries on Sunday, clouding the outlook for the euro zone, already hit hard by the fast-deteriorating east European economies. [ID:nL1547427]
The dollar rose to its highest in three years against a basket of currencies .DXY, adding to gains made late last week on safe-haven buying after the U.S. government said it would raise its equity stake in Citigroup and data showed the U.S. economy had its deepest contraction since 1982. [ID:nN27330392]
The dollar edged down 0.3 percent to 97.44 yen in choppy trade in which it fell as low as 96.94 yen on Reuters dealing system, but rebounded quickly to pare losses.
The New Zealand dollar fell to a six-year low as a gloomy economic outlook and weak share prices saw investors turn more risk averse. The kiwi was down 1.3 percent at $0.4945 after falling as low as $0.4913, the lowest since November 2002.
