TOKYO (AFP) - The dollar fell below the key 120-yen level for the first time in more than two months in Asian trade on Wednesday, shaken by growing worries about the US housing market's woes, dealers said.
But they said the dollar rebounded from a record low against the euro as players locked in gains from the single European currency's rise.
The dollar dropped to 119.87 yen in Tokyo morning trade from 120.23 yen in New York late Tuesday.
"It is a big move that the dollar fell below the major psychological line of 120 yen," said Kenichi Yumoto, vice president of foreign exchange sales at Societe Generale in Tokyo.
"The dollar is weak against other major currencies. Behind this was the fall in US stocks due to the credit woes" in the US housing market, he said.
The dollar rebounded against the euro on profit taking after the single currency hit 1.3852 dollars on Tuesday, the highest level since its creation in 1999 on nervousness about the sub-prime mortgage lending sector in the United States offering loans to people with risky credit histories.
The euro bought 1.3803 dollars in Tokyo morning trade, down from 1.3821 late Tuesday in New York. It dropped to 165.60 yen after 166.21.
Sub-prime lenders in the US have suffered widespread mortgage defaults in the slumping housing market.
Yumoto said the euro's uptrend was intact despite the pullback and predicted it would continue to rise while undergoing periodic corrections.
The US housing market is again in focus later Wednesday with the release of existing home sales for June which are expected to show a bigger fall of 2.1 percent after dropping 0.3 percent in May, according to analysts.
US stocks fell heavily Tuesday as jitters about the housing slump after a bleak warning from a key mortgage lender prompted investors to run for cover, sending the Dow Jones index down 1.62 percent.
Japanese shares followed suit on Wednesday, with the Nikkei-225 index dropping 1.11 percent in morning trade.
Dealers said the share price falls could dampen the market's appetite for so-called carry trades by speculators borrowing cheaply in countries such as Japan to invest overseas where interest rates are higher.
Players were also awaiting the release Wednesday of the US Federal Reserve's Beige Book economic report.
Fed chairman Ben Bernanke has said the squeeze in sub-prime housing so far has had only a limited effect on the broader economy but his remarks have provided only limited comfort to skittish investors.