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By Steven Vames
Dow Jones Newswires
NEW YORK -- The dollar plunged, posting its largest one-daylossversus the euro since August and dropping to a seven-yearlowversus the South Korean won, as
reports of diversificationofofficial reserves again spooked the market.
Plans for South Koreas central bank to diversify its $200billionin foreign-exchange holdings, mentioned in a briefing fromthe Bankof Korea to lawmakers, didnt necessarily come as a bigsurprise.The statement reflected official comments dating backmore than ayear that the bank was lowering the proportion of U.S.Treasurys inits reserve holdings.
But the publicity garnered by the Bank of Korea document onMondayand yesterday helped revive one of the looming concernsthatpressure the dollar: that global central banks, discouraged bylowyields and protracted declines in the value of the dollar,couldstart to reduce their adherence on the dollar as areservecurrency. That, in turn, playsotnifears that the U.S.willstruggle to finance its huge current-account deficit.
The big risk from this situation is that other FarEasterncentral banks begin to do the same. Remr, Russia alreadyhasannounced that they may begin increasing the size of euros intheirreserves back on Novr 23rd and the buck tanked on that day,too,said Andy Busch, global foreign-exchange strategist atHarrisNesbitt in Chicago in an e-mail note yesterday.
U.S. banks had been closed Monday for the PresidentsDayholiday.
In late New York trading, the euro was at $1.3256, up from$1.3065late Monday in Toronto. The dollar was at 104.06 yen, downfrom105.57 yen, and at 1.1585 Swiss francs, down from 1.1823francs. Thepound rose to $1.9109 from $1.8968.
The dollars drop lifted the euro more than 1.4% to itsstrongestlevel in six weeks. Meanwhile, the U.S. currency also lost1.4%versus the yen during yesterdays session. The dollar alsolostabout 2% versus the Korean won, which traded at its highestlevelin more than seven years.
Spurred by the wons gains, the Taiwan dollar climbed toafour-year high against its U.S. counterpart. Other EastAsiancurrencies such as the Singapore dollar and the baht rose, butto alesser degree.
A sharp rally in oil and commodity prices also put pressure onthedollar. Crude oil for March delivery ended up $2.80 at $51.15abarrel, its highest level since Novr. The Dow JonesIndustrialAverage sank sharply, shedding 174.02 points to 10611.20,while theNasdaq Composite Index dropped 28.30 points to2030.32.
Meanwhile, gold traded up 1.7%, or $7.40 an ounce, to $434.50anounce, its highest level since Jan. 3. The CRB commodity index,abroad measure of commodity futures prices, ended up $7.05at$297.66, its highest level since early 1981.
The strong rally in commodities, coupled with the news fromSouthKorea, helped pushed currencies strongly tied with commoditypricesparticularly higher. The U.S. dollar was at a 20-year lowversusthe New Zealand dollar, and the Australian dollar was tradingjustbelow an eight-year high versus the U.S. dollar.
The dollar selloff had been touched off after reportswerepublished Monday that the Bank of Korea said it willdiversifyfuture reserve purchasesotnia greater range ofcurrencies andseek out higher yields through purchases ofnonsovereign debt. TheSouth Korean parliament will reportedlydiscuss the document, whichcontained the reference to reservediversification on Feb. 24.(编辑:ln)
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