Dollar gains on credit jitters

LONDON (AFP) - The dollar gained on the euro yesterday, as investors turned to the greenback as a safe haven amid fears of a looming financial credit crunch.

The single European currency was at 1.3647 dollars in late-day trade, down from 1.3743 in New York on Thursday.

The dollar was meanwhile trading at 118.57 yen after 118.68 on Thursday.

Analysts said that investors, anxious that a credit squeeze brought on by a sharp deterioration in the key US housing market was about to materialise, were dumping shares for a second day in a row as appetites for risk shrank around the world.

Analysts are concerned that the faltering US housing sector will hurt banks and finance companies enough to curb the availability of credit on which the economy feeds.

That, in turn, could hurt private equity groups because their takeover bids are often financed by large amounts of bank debt.

Under such circumstances the dollar was finding favour as a safe-haven currency, notably as investors fear that weakness in the US subprime market, where defaults were rising on loans made to people with uncertain credit histories, could spread to Europe and elsewhere.

"This is unlike the US-centric nature of subprime concerns over recent weeks, which only inflicted damage on the dollar as opposed to other currencies," said Mitul Kotecha at Calyon.

"The fact that subprime concerns have now become global has meant that the dollar is actually benefiting," he added.

The dollar eased a bit at one point yesterday after a larger than expected fall in core US inflation offset a robust set of second quarter GDP figures. Lower inflation suggests that the US Federal Reserve will not raise interest rates, thereby putting downward pressure on the US currency.

The US economy is estimated to have grown 3.4 percent between April and June compared to the same period a year ago, slightly faster than the 3.2 percent economists had expected.