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LONDON - The dollar rallied against the euro on Monday, reversing earlier heavy falls, as foreign exchange dealers reacted to the US financial crisis after the collapse of investment giant Lehman Brothers.
The European single currency slid to 1.4207 dollars in early morning trade from 1.4229 dollars late in New York on Friday.
The euro had hit as high as 1.4481 dollars in earlier Asian trade amid mounting concerns over Lehman Brothers and following the sale of peer Merrill Lynch.
Against the Japanese currency, the dollar plunged to 104.37 yen, down sharply from 107.92 on Friday. World financial markets endured volatile trade Monday as US investment banking giant Lehman Brothers filed for bankruptcy after failing to find a buyer having been crippled by the US subprime housing crisis and credit crunch.
"The turbulences in the US financial system should stay in the focus of the FX (foreign exchange) markets in the next couple of days," said Commerzbank analyst Ulrich Leuchtmann. Moves by the world central banks to ease global markets turmoil appeared to have done little to calm investors' nerves, analysts said.
The US Federal Reserve, European Central Bank (ECB) and Bank of England (BoE) injected tens of billions of dollars into money markets after the fall of the banking titans under the weight of the massive financing of bad loans.
The ECB said it injected 30 billion euros (43 billion dollars) into money markets to keep them going after the Lehman collapse.
The Bank of England injected 5.0 billion pounds (6.3 billion euros, 9.0 billion dollars) into short-term money markets. "It remains to be seen whether today's (BoE) operation will be sufficient to restore market confidence," warned Royal Bank of Scotland analyst Jacques Cailloux. Lehman Brothers said it would file for bankruptcy on Monday after a frantic weekend of negotiations failed to arrange a rescue.
In the fallout, Bank of America took over Merrill Lynch in a 50 billion dollar deal, insurance giant AIG was reported to have sought a massive emergency loan to head off its own crisis and a group of banks set up a 70-billion-dollar global emergency fund.
John Horner, a forex strategist at Deutsche Bank, had told Dow Jones Newswires the dollar was likely to remain under pressure overall as long as Lehman Brothers' survival was in doubt. Lehman Brothers announced its bankruptcy on Monday after the former Wall Street giant, scarred by the subprime mortgage meltdown, failed to find a buyer.
Another Wall Street giant Merrill Lynch, hit also by huge losses from the subprime mortgage meltdown, was forced to sell itself to Bank of America for 50 billion dollars.
The deal, which values Merrill Lynch at 29 dollars a share, was announced also on Monday. Last week, meanwhile, the euro had tumbled under 1.39 dollars for the first time in a year on worries about the European economy as it neared a recession.
In early London trading on Monday, the euro changed hands at 1.4207 dollars against 1.4229 late Friday, at 149.37 yen (153.55), 0.7938 pounds (0.7929) and 1.5893 Swiss francs (1.6074). The dollar stood at 104.73 yen (107.92) and 1.1142 Swiss francs (1.1293).
The pound was at 1.7971 dollars (1.7940).
On the London Bullion Market, the price of gold climbed to 781 dollars per ounce from 740.75 dollars late on Friday.
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