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TOKYO (AFP) - The dollar briefly hit another record low against the euro and was close to a 26-year nadir against sterling in Asian trade Wednesday amid concerns over the US housing market, dealers said.

The euro hit an all-time high of 1.3787 dollars in early Asian trade while the dollar struck a low of 120.97 yen briefly before rebounding against both currencies in volatile trade.

The dollar fell after Standard & Poor's said that it may cut credit ratings on 12 billion dollars in sub-prime mortgage bonds based on loans to people with patchy credit histories.

The market sold "the dollar amid concerns over the sub-prime market," said Yosuke Hosokawa, head of forex group at Chuo Mitsui Trust Bank.

By late morning in Tokyo, the dollar was at 121.70 yen, down from 121.76 late Tuesday in New York.

The euro stood at 1.3736 dollars, down from 1.3746 in New York, while falling to 167.17 yen after 167.47.

Financial markets are worried that a US housing market slump could expand to the broader finance sector and hurt big Wall Street banks that issued bonds backed by mortgages.

But dealers said the dollar could recover some poise soon in light of recent firm economic data, including Friday's non-farm payrolls.

"It's not as if traders are massively selling the dollar to reduce risk. The Dow fell but within a range. The US economy is not doing too badly," said Hosokawa.

The dollar's recent weakness has been spurred by expectations that the US Federal Reserve will hold interest rates steady in the near future while other major central banks tighten monetary policy.

Sterling leapt to its highest level since 1981 on Tuesday, moving as high as 2.0276 dollars. The pound was at 2.0246 dollars in early Tokyo deals.

Fed chairman Ben Bernanke's comments in a speech on Tuesday offered little guidance on the US central bank's next step, dealers said.

The Bank of Japan was due to start a two-day policy meeting Wednesday although it is expected to lave its benchmark lending rate on hold at 0.5 percent for now.

Dealers hope for clues on when the next Japan rate hike will come and are nervous about the possibility of a split vote that could raise expectations of an increase as soon as next month.

GFT senior analyst Ian Copsey said the yen is likely to make further inroads into the dollar while the euro's next target is 1.3830 dollars.