Dollar gains on yen amid easing US mortgage worries

July 14, 2008
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, TOKYO, July 14 – The dollar rose against the yen in Asian trade Monday as markets cheered measures by Washington to bolster two US mortgage giants, dealers said.

But they said the greenback slipped against the euro amid ongoing worries about the health of the US economy and a slew of earnings results from major US banks due this week.

The dollar firmed to 106.51 yen in Tokyo afternoon trade from 106.25 in New York late Friday. The euro gained to 1.5878 dollars from 1.5832 while slipping to 169.11 yen from 169.30.

The dollar was supported against the yen after US Treasury Secretary Henry Paulson on Sunday announced bigger credit lines for Fannie Mae and Freddie Mac, which offer vital support to the multitrillion-dollar US mortgage market.

The steps "boosted hopes that some calm will return to US financial markets," said Kazuhiko Shibata, Tokyo branch manager of Dresdner Bank.

Fannie Mae and Freddie Mac together own or guarantee about 40 percent of the total value of home loans in the United States.

"It now seems unthinkable that the US government will just let those (two companies) go under without doing anything. That should be taken as something positive," Deutsche Securities strategist Koji Fukaya told Dow Jones Newswires.

But the measures do not mean that the US economy is in better shape than before or that interest rates there are set to be raised, "so it\’s tough to buy the dollar," Fukaya said.

Paulson said the two organisations would get a bigger credit line "temporarily," without giving further details. He said the Treasury Department would get temporary authority to buy their shares should that be necessary.

Meanwhile the Federal Reserve Bank of New York was granted the authority to lend to Fannie Mae and Freddie Mac if needed.

Markets saw the moves as an effort to stave off a repeat of the turmoil triggered by the collapse of US investment bank Bear Stearns in March, due to the subprime loan crisis, said Shibata of Dresdner Bank.

Traders were nervous ahead of earnings results from Wall Street giants Merrill Lynch and JPMorgan Chase on Thursday, followed by Citigroup on Friday.

"If the banks reveal bigger-than-expected losses, that could trigger a heavy sell-off of the dollar," said Shibata.

Against regional Asian currencies, the dollar eased to 1.3562 Singapore dollars from 1.3603 on Friday, to 9,154 Indonesian rupiah from 9,160 and to 45.52 Philippine pesos from 45.82.

It firmed to 1,005.65 South Korean won from 1,002.55 while holding steady at 30.40 Taiwan dollars and at 33.67 Thai baht.

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