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Dollar slips against euro, yen

LONDON - The dollar dropped against the euro and yen on Wednesday on fresh worries about problems for the US banking sector and after data showed industrial production steadied in the eurozone, dealers said.

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In morning deals, the European single currency rose to 1.4930 dollars from 1.4920 late in New York on Tuesday.

The dollar slipped to 109 yen from 109.31, after trading as low as 108.38 yen in Asian trading.

The US currency had struck a near six-month high against the euro on Tuesday.

Eurozone industrial production steadied in June from the May level which had shown a sharp fall, data from the EU statistics office Eurostat showed on Wednesday.

But on a 12-month basis, industrial output fell by 0.5 percent.

Analysts polled by Dow Jones Newswires had broadly expected a slightly stronger performance, expecting a monthly increase of 0.1 percent, and a rise of 0.2 percent on a 12-month basis.

Despite the weaker than expected data, the euro was supported against the dollar as the market focused on more worrying news surrounding the financial sector in the United States, the world's biggest economy.

The dollar weakened "due to a drop in US shares on continued weakness in the financial sector," said Hachijuni Bank dealer Yuya Koike.

Wall Street giant JPMorgan Chase and Swiss rival UBS on Tuesday reported losses owing to their exposure to the crumbling US mortgage market, rekindling worries about the fallout from the global credit crunch.

JPMorgan Chase, which took over the distressed bank Bear Stearns in March, posted a loss of 1.5 billion dollars (1.0 billion euros) for the third quarter.

Japan's economy meanwhile shrank by 0.6 percent in the three months to June from the previous quarter, moving a step closer to recession, official data showed on Wednesday. It was the first contraction in a year.

But the data had little impact on markets because it had been widely expected, dealers said.

"The government has already virtually announced that the economy is in a recession period, so negative growth numbers have only limited impact on market sentiment," JPMorgan Chase strategist Tohru Sasaki told Dow Jones Newswires.

Markets were waiting for US retail sales data due Wednesday to see how consumption is holding up amid the US economic slump, with the effects of tax rebates to boost spending starting to fade, dealers said.

The dollar has been supported in recent sessions by signs that the US economic slowdown is taking a heavy toll on other major economies, including in the eurozone and Japan.

Markets are also bracing themselves for a fresh batch of European indicators due later this week, particularly growth data from the 15-member eurozone including its biggest economy, Germany.

"The European and Oceanian economies are clearly slowing down," said Keiichi Iguchi, a dealer at Resona Bank.

The British pound slid to a 20-month low point against the dollar after the Bank of England suggested there would be no cuts to British interest rates soon as it warned on Wednesday that inflation would continue to surge, before falling sharply.

In London trading on Wednesday, the euro changed hands at 1.4930 dollars against 1.4920 late on Tuesday, at 162.59 yen (163.08), 0.7921 pounds (0.7866) and 1.6235 Swiss francs (1.6212).

The dollar stood at 109 yen (109.31) and 1.0880 Swiss francs (1.0865).

The pound was at 1.8767 dollars (1.8965).

On the London Bullion Market, the price of gold increased to 820.67 dollars per ounce from 817.75 dollars late on Tuesday.