DOLLAR NEWS

Dollar Falls Versus Euro on Concern Financial Losses to Deepen

July 10 (Bloomberg) -- The dollar fell against the euro on concern losses at financial firms will deepen, prolonging the U.S. economic slowdown.

Treasury Secretary Henry Paulson said in prepared congressional testimony that he's been assured by the regulator for Fannie Mae and Freddie Mac that the two companies have enough capital. The pound dropped versus the dollar and the euro as the Bank of England left its benchmark lending rate unchanged, increasing the risk of a recession.

``The heightened state of uncertainty is putting the dollar on the defensive,'' said Carl Forcheski, vice president on the corporate currency sales desk at Societe Generale SA in New York. ``The overhanging concern about the financial sector is dogging the market here.''

The dollar dropped 0.3 percent to $1.5782 per euro at 10:28 a.m. in New York, from $1.5743 yesterday. The U.S. currency traded at 106.84 yen, compared with 106.76. The euro appreciated 0.3 percent to 168.60 yen, from 168.06.

South Korea's won gained for a fourth day on speculation the government is intervening to halt the currency's decline to curb inflation. The Finance Ministry reiterated today that the government will tackle risks stemming from higher oil costs. The won rose 0.2 percent to 1,002.97 per dollar.

The British pound decreased 0.5 percent to $1.9726 after the central bank kept its benchmark interest rate at 5 percent. Against the euro, sterling dropped 0.4 percent to 79.71 pence.

Weakened Dollar

The dollar has fallen 11 percent against the euro since September, when the Fed made the first of seven reductions in its target lending rate to avert a recession. Futures contracts on the Chicago Board of Trade show 86 percent odds that policy makers will keep borrowing costs unchanged next month.

Fannie and Freddie tumbled to the lowest level in 17 years in New York trading after former St. Louis Fed President William Poole said in an interview today that chances are increasing that the U.S. may need to bail out the companies.

The dollar fell against the euro yesterday after Fannie, the biggest provider of financing for U.S. home loans, paid a record yield relative to Treasuries on the sale of $3 billion in notes.

``There's a mixture of risk, which seems to be based in the U.S. in the special areas of finance, Fannie Mae and Freddie Mac,'' said Peter Frank, a currency strategist in London at Societe Generale SA, France's second-biggest bank by market value. ``We may see the dollar weakening again against a broad cluster of currencies.''

French Output

The euro weakened against the dollar earlier after reports showed French and Italian industrial production dropped in May more than economists forecast, raising concern European economic growth is slowing.

Output at French factories and utilities fell 2.6 percent from the previous month, the biggest decline since October 2005 the Paris-based statistics office said today. Italian production declined 1.4 percent from April, almost three times the drop forecast by economists in a Bloomberg News survey.

The euro may rise to $1.5909 against the dollar should it stay above its five-day moving average, said Masashi Hashimoto, a senior currency analyst at Bank of Tokyo-Mitsubishi UFJ Ltd.

The average, currently $1.5715, will provide a level of so- called support for the euro, Tokyo-based Hashimoto said, citing technical charts traders use to predict price movements. The firm's target matches a two-month high set by the 15-nation currency on July 3. Support is an area at which buy orders may be clustered.

The Norwegian krone declined as much as 0.4 percent to 8.0833 per euro after a government report showed inflation accelerated in June less than economists forecast.