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War jitters knock dollar to low
LONDON, England (Reuters) -- The dollar hit a four-year low beyond $1.10 per euro for a third day on Friday as investors grew more convinced of imminent war against Iraq, but the dollar found support versus the yen from talk of intervention by Japan. U.S. President George W. Bush said in early Asian trade that refusing to use force to disarm Iraq posed "unacceptable risks'' and that Washington would spend only days persuading other nations to support a second U.N resolution authorising force before bringing the issue to a vote at the Security Council, regardless of whether Washington could count on its passage. Investors took his remarks as indicating Washington may go ahead with military action despite opposition from many other United Nations member countries, and sold the dollar. Japanese authorities, however, were seen buying dollars at around 117.10 yen in late Tokyo trade. Policymakers are worried that a strong yen could damage Japan's fragile export-led recovery, and Japan's Ministry of Finance has said it intervened in January and February. "The consensus is that we are definitely going to war and it's probably two to three weeks away, no more than that,'' said Derek Halpenny, currency economist at Bank of Tokyo-Mitsubishi. "We can take it as a given that the Bank of Japan is in the market at or around 117, so that the low we have tested in the past at 116.80 remains intact.'' The euro was trading just off its highs of $1.1029 at 0845 GMT, a gain of half a percent from the U.S. close. The single currency was hovering near an earlier three-week high of 129.35 yen, up a quarter percent on the day. The dollar picked up only about 10 ticks from earlier lows against the yen after Tokyo traders said the Bank of Japan was buying at 117.10. It was at 117.22 at 0845, nearly half a yen above recent six-month lows of 116.80. JAPAN WORRIES"The yen is not reacting much, essentially the Bank of Japan has taken away the market's will to trade it,'' said a London-based trader. Traders believe Japanese authorities are keen to protect the dollar from falling under its recent six-month low against the yen since heavy options-related selling was likely under that level. Zembei Mizoguchi, Japan's vice finance minister for international affairs, reiterated earlier on Friday that Japan would watch the market carefully and act as needed. Outgoing Bank of Japan governor Masaru Hayami said, however, that the Japanese authorities should not intervene covertly in large volume on the foreign exchange market because it was against International Monetary Fund rules. The market showed little reaction to a fall on the Tokyo Nikkei share average to a two-decade low. Traders said foreign investors had already lowered their holdings of Japanese stocks and thus expected little effect even if the benchmark falls further. The Nikkei closed down 2.69 percent or 225.03 points at 8,144.12, the lowest close since March 1983. NEXT STEPSThe market is now waiting on a key report by chief U.N. weapons inspector Hans Blix on Iraqi compliance expected from 1530 GMT and also waiting to see if Washington will be able to garner international support for military action. Also attracting attention was key U.S. employment data due at 1330 GMT. Economists polled by Reuters expected non-farm payrolls to have increased a meagre 8,000 in February after rising by 143,000 in January. U.S. Federal Reserve Chairman Alan Greenspan speaks via satellite on global finance before a Bank of France symposium in Paris at 1445 GMT. U.S. stocks fell by around one percent on Thursday, and stock index futures were indicating a weaker open on Wall Street. Elsewhere, the Swiss franc approached four-year highs against the broadly weak dollar but hit two-week lows against the euro after the Swiss National Bank cut interest rates by half a percentage point on Thursday. The SNB cut its repo rate on Friday, offering overnight and one-week market liquidity via repurchase agreements at 0.15 percent, from the 0.50 percent rate that had prevailed since December 24.
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