The dollar dropped against the euro on Thursday while gaining versus the yen as the market reacted to the swine flu outbreak and signs of economic recovery in the United States, traders said.
In London morning trade, the euro rose to 1.3325 dollars from 1.3269 dollars late on Wednesday in New York.
Against the Japanese currency, the dollar increased to 97.76 yen from 97.66 yen late Wednesday.
The dollar however fell in Asian trading Thursday, with dealers selling the greenback after the Wall Street Journal reported that the US Treasury Department's talks with lenders to keep Chrysler out of bankruptcy had broken down.
The news boosted demand for the yen, which is seen as a relatively safe bet during times of economic turmoil.
"A minority of players expected that Chrysler could avoid filing for Chapter 11 (bankruptcy protection), but the news wiped out such optimism," Kazuyuki Takami, a senior foreign exchange dealer at Bank of Tokyo-Mitsubishi UFJ, told Dow Jones Newswires.
The clock was ticking on a deadline at midnight on Thursday for a viable restructuring plan that would clinch more government funding for Chrysler.
The fresh jitters overshadowed early optimism triggered by the Federal Reserve, which on Wednesday said the pace of economic contraction in the United States appeared to be slowing.
Japan announced its first increase in factory output in six months, but traders said they were more focused on the US data. A decision by the Bank of Japan to leave its key lending rate at 0.1 percent also had little impact.
Many traders were reluctant to take risks ahead of the May Day holiday in Europe on Friday as well as a three-day break in Japan next week, when the results of Washington's "stress tests" of US banks are also due.
Investors also remained cautious about the swine flu outbreak, as a toddler in the United States became the first to die of the disease outside of Mexico.
"I think there is a strong yen, weak dollar risk for now, ahead of the US bank 'stress test' results... and with the threat that the swine flu could spread further, prompting more risk aversion," said Yuzo Sakai, manager of foreign exchange business at Tokyo Forex & Ueda Harlow.
In London trade on Thursday, the euro was changing hands at 1.3325 dollars against 1.3269 dollars late on Wednesday, at 130.48 yen (129.58), 0.8953 pounds (0.8982) and 1.5107 Swiss francs (1.5079).
The dollar stood at 97.76 yen (97.66) and 1.1320 Swiss francs (1.1360).
The pound was at 1.4908 dollars (1.4769).
On the London Bullion Market, the price of gold rose to 898.55 dollars an ounce from 898.25 dollars an ounce late on Wednesday.
