Dollar rises against euro after central bank action

LONDON (AFP) - The dollar climbed against the euro yesterday as the world's major central banks continued their efforts to restore some calm to volatile financial markets, analysts said.

In late European trade, the euro fell to 1.3622 dollars, its lowest level in a month, from 1.3692 dollars late in New York on Friday.

The dollar gained to 118.47 yen, from 118.37 yen in New York late on Friday.

The greenback has found support in recent days from its status as a safe haven investment in times of global financial turmoil, dealers said.

The European Central Bank yesterday pumped another 47.66 billion euros (65.06 billion dollars) into the money market to address liquidity shortages amid growing fears about the US home loan sector.

The bank said earlier that the eurozone banking market was returning to normal after it injected a record 155.85 billion euros into the market over two days last week.

Yesterday, the Bank of Japan announced another cash injection of 600 billion yen (5.0 billion dollars) and the US Federal Reserve added another 2.0 billion dollars.

Analyst Neil Mellor at the Bank of New York Mellon predicted more volatility in financial markets.

"Given that market liquidity remains partly dependent on central bank activity and that it will be some time before we can declare a cessation in unfavourable newsflow, a market on tenterhooks gives only limited grounds for optimism that any stability is here to stay," he said.

The current turmoil in financial markets stems from concerns that banks exposed to losses in the US subprime housing market might have insufficient cash to continue lending normally, causing a credit crunch.

"Any time there is any improvement in sentiment, it only takes more bad news from a hedge fund or bank to reverse it again," warned analyst Mitul Kotecha of Calyon.

"Indeed, recent weeks have been characterised by volatile trading conditions, as market sentiment shifts back and forth in the wake of various pieces of good and bad news.

"The longer it continues, the greater the chance of rate cuts, but even that may matter little if this develops into a full-blown credit crunch."

The cash injections, which enable commercial banks to borrow from central banks to meet their liquidity needs, are designed to forestall a credit freeze linked to problems in the US subprime, or high-risk, mortgage market.

Subprime loans are offered to Americans who have a poor credit rating and might otherwise be denied mortgages.

This week also sees more crucial US data releases, including consumption, machinery orders, and housing data.

"Considering fears over possible negative effects of the current subprime crisis on US and/or global growth ... the market will monitor closely the release of US fundamental data during the next days," added Commerzbank analyst Gavin Friend.