Dollar falls on weak financial sector

U.S. currency stumbles as major institutions are said to face further billions in losses.

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By Kenneth Musante, staff writer

The presidential candidate I believe will have the most positive influence on my pocketbook is:
  • McCain
  • Obama
  • Neither

NEW YORK ( -- The dollar fell against major currencies Thursday as investors perceived further weakness in U.S. financial institutions and rallying oil attracted investors.

U.S. currency lost ground against the 15-nation euro, which rose to $1.4888 from $1.482 late Wednesday. The dollar also fell against the Japanese yen, slipping to ¥108.22 from ¥109.85 a day earlier.

Financial sector: Analysts were pessimistic about major financial firms Thursday, suggesting further trouble for the U.S. economy and indicating the Federal Reserve may need to keep cash flowing to them by holding a key interest rate steady.

Investment bank Lehman Brothers Holdings Inc. (LEH, Fortune 500) could face more than $3 billion in writedowns, and may have a tough time selling off assets to make ends meet, according to Citigroup analyst Prashant A. Bhatia.

Lehman also failed an attempt to gain capital by selling of 50% of its shares to Korean and Chinese investors, according to a Financial Times report Wednesday.

Bhatia also slashed estimates for Morgan Stanley (MS, Fortune 500) and Goldman Sachs Group, Inc. (GS, Fortune 500), saying they could take losses of nearly $2 billion each in the most recent quarter.

Further concerns about mortgage finance companies Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) also sent stocks lower Wednesday.

The currencies market has long been aware of weak U.S. financial institutions, but investors are finally able to pin those weaknesses down with hard numbers, according to Kevin Chau, foreign exchange analyst at IDEAGlobal.

"The sentiment is that these problems are intensifying," said Chau.

Commodities: The dollar also suffered as investors pulled their investments out of currencies and put them back into commodities, particularly crude oil. Oil jumped about $6 to more than $121 a barrel.

Crude prices above $120 a barrel sparked concern about inflation, according to Simon Derrick, chief currency strategist with Bank of New York Mellon in London.

"People are rather more cautious about commodity prices and oil prices," he said.

Investors commonly buy crude and other commodities to hedge against inflation. Oil is also traded in dollars, so a falling dollar makes oil cheaper for foreign investors.

Euro economy: While investors were focused on U.S. financial weakness, the 15-nation euro zone strengthened slightly, according to reports.

A report from Royal Bank of Scotland and Markit Economics showed that manufacturing in the euro zone improved slightly in August to a reading of 48 from 47.8 last month.

"It was marginally better than expected," said Jacques Cailloux, head of euro economics for Markit.

The measurement indicated that private business activity in Europe continued to shrink, since it was below 50, but it allayed investor fears that deterioration of the euro economy would have accelerated in August, according to Cailloux. To top of page

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