Dollar steady as Fed rate cut calms market

TOKYO (AFP) - The dollar held steady in Asian trade on Monday as the US Federal Reserve's decision late last week to cut its discount interest rate helped to bolster ailing global stock markets, dealers said.

But they said trading remained nervous with market players still cautious about the risk of further volatility given the unresolved problems in the troubled US housing sector.

The dollar rose to 114.53 yen in Tokyo morning trade from 114.29 in New York late Friday, where it earlier plunged to a 14-month low of 111.60.

The yen had shot higher last week as investors scrambled to unwind risky "carry trades" that favour high-yielding currencies.

The euro gained to 1.3495 dollars from 1.3472 and to 154.55 yen from 153.93.

"The market managed to regain some stability as relief spread to the market following the Fed's decision," said Yosuke Hosokawa, head of forex at Chuo Mitsui Trust Bank.

"A recovery in the equity market, including Tokyo, also helped subdue volatility," Hosokawa said.

The Tokyo Stock Exchange's benchmark Nikkei-225 index of leading shares rose 562.89 points or 3.69 percent to 15,836.57 by the lunch break after plunging by 5.42 percent on Friday, the biggest one-day point drop since April 2000.

As part of ongoing efforts to restore calm to financial markets, Japan's central bank said Monday that it would inject a further 1.0 trillion yen into the banking system.

"But sensitive trading is expected to continue for the time being as we have not seen any conclusion to the sub-prime loan issue," Hosokawa said.

The recent stock market slump prompted players to unwind carry trades which involve borrowing the currencies of countries with low interest rates, such as the yen, to buy higher yielding units, such as the Australian dollar.

Dealers added that yen-buying was capped by expectations that the Bank of Japan will refrain from raising interest rates when it holds a monetary policy meeting on Wednesday and Thursday of this week.