Dollar slides on housing woes, soft economic data

TOKYO (AFP) - The dollar dropped to a four-month low against the yen in Asian trade Monday, hit by weak economic data and continued concerns about troubles in the US housing market, dealers said.

The dollar fell to as low as 117.18 in early Tokyo trade before recovering to 117.40 yen by late morning, down from 118.02 in New York late Friday.

The euro firmed to 1.3815 dollars from 1.3775 but slipped to 162.16 yen from 162.56.

The dollar remained on the backfoot amid stubborn worries about the US sub-prime mortgage market and fears of a credit crunch that prompted players to buy back the yen as they reduce risky positions, dealers said.

The dollar was also hit by soft US employment and services data.

The US Labor Department on Friday reported below-par job growth of 92,000 new positions in July, the weakest figure since February and sharply below economist consensus forecasts of 135,000.

The unemployment rate also crept up unexpectedly, by 0.1 percentage points to 4.6 percent.

The numbers fuelled fears that problems in the weak US housing sector are spreading to the labour market, which until recently had been one of the strongest parts of the economy, dealers said.

Separately, the Institute of Supply Management (ISM) index said its service sector business index fell to 55.8 in July from 60.7 in June. It was also well below predictions of a more modest drop to 59.0.

"In the beginning, investors were largely focused on risks in the sub-prime market but with the low jobs and ISM report, investors are now asking themselves whether the overall US economy is losing steam," said Kikuko Takeda, currency research manager at Bank of Tokyo-Mitsubishi UFJ.

Market participants are now anxiously waiting for a meeting of Federal Reserve policymakers on Tuesday for a lead on how the US central bank views the problems in the US credit markets.

Analysts expect the Fed to keep its fed funds rate unchanged at 5.25 percent as the central bank has generally kept an optimistic outlook on the actual US economy as fundamental indicators remain firm.

But currencies may react sharply to any comments from Fed chairman Ben Bernanke and his colleagues on his assessment of the risks facing the US economy, Takeda said.

"If the nuance in the Fed statement points towards a rate cut, then the dollar will fall further," she said.

"But if the market takes the view that the Fed is trying to solve this problem quickly then it might not be so bad in the long run," she added.

Bernanke told US Congress on July 19 that he expected "significant financial losses" from failed sub-prime real estate loans but only a limited effect on the overall economy.

The Japanese market was also waiting for a batch of domestic economic indicators this week, including machinery orders on Wednesday, amid uncertainty about whether the Bank of Japan will raise interest rates later this month.