Entries Tagged 'markets' ↓

KISSIMMEE, Fla. — Giant banks that are perceived as “too big to fail” are among the “most insidious barriers to competition in financial services,” the Federal Reserve chairman, Ben S. Bernanke, said on Saturday.

In a speech here to a convention of the Independent Community Bankers of America, Mr. Bernanke also argued that the Fed should retain its powers to oversee small and medium-size community banks.

The Senate is contemplating a regulatory overhaul that would focus the Fed’s attention on the largest and most interconnected financial institutions and strip its supervision of roughly 4,900 bank holding companies and 850 state-chartered banks that are members of the Fed system.

While Mr. Bernanke had made similar arguments in testimony to Congress, his assessment of the dangers posed by giant banks was sharper and more pointed.

“One of the greatest threats to the diversity and efficiency of our financial system is the pernicious problem of financial institutions that are deemed ‘too big to fail,’ ” Mr. Bernanke said.

That line, and others, elicited applause from the bankers, who have been wary of the overhaul, which would enhance consumer protections and tighten capital and liquidity requirements.

“It is unconscionable that the fate of the world economy should be so closely tied to the fortunes of a relatively small number of giant financial firms,” Mr. Bernanke said. “If we achieve nothing else in the wake of the crisis, we must ensure that we never again face such a situation.”

Institutions perceived as “too big to fail” can borrow money on better terms and take on excessive risks because they face limited “market discipline,” he said.

To address the problem, Mr. Bernanke outlined a three-part strategy: create “significantly tougher rules and oversight”; improve the resilience of the system; and establish a process to seize and then sell, merge or break up a systemically important institution on the verge of failure.

President Obama used his weekly radio and Internet address on Saturday to make a similar point, as he pressed the case for comprehensive changes to the financial system and called on the Senate “to resist the pressure from those who would preserve the status quo high quality business cards.”

Pointing out that the Senate Banking Committee was scheduled to begin debate on the overhaul on Monday, Mr. Obama repeated his support for creating an agency to protect consumers from abusive and deceptive practices by banks, mortgage companies and other lenders.

Mr. Obama said he had been “a vigorous defender of free markets,” but added that “without reasonable and clear rules to check abuse and protect families, markets don’t function freely.”

Mr. Obama said: “I won’t accept any attempts to undermine the independence of this agency. And I won’t accept efforts to create loopholes for the most egregious abusers of consumers.”

The bill being taken up on Monday has no Republican support. It was presented by the committee chairman, Senator Christopher J. Dodd, Democrat of Connecticut, who had engaged in months of talks to reach a bipartisan compromise before deciding that he could no longer wait.

In December, the House adopted, largely along party lines, a regulatory overhaul similar to one the White House put forward last June. Mr. Obama called Mr. Dodd’s proposal “a strong foundation for reform.”

Mr. Obama also took aim at Republicans. Citing news accounts of a January meeting between the House Republican leader, John A. Boehner of Ohio, and Jamie Dimon, chief executive of JPMorgan Chase, Mr. Obama said Mr. Boehner had “made thwarting reform a key part of his party’s pitch for campaign contributions.” And he said that opponents of a consumer agency had begun a multimillion-dollar advertising campaign.

“You might call this ‘air support’ for the army of lobbyists already arm-twisting members of the committee to reject these reforms and block this consumer agency,” Mr. Obama said. “Perhaps that’s why, after months of working with Democrats, Republicans walked away from this proposal.”

A spokesman for Mr. Boehner, Michael Steel, said of the president, “It should be beneath him to use the official weekly address to make inaccurate partisan attacks.”

Fed Chief Takes Aim at Banks As Obama Pushes Overhaul

TOKYO – Japan’s central bank is escalating the fight against deflation by offering more cheap loans to banks.

In a split decision, the Bank of Japan’s policy board decided Wednesday to double the amount available under its short-term lending program to 20 trillion yen ($221 billion) from 10 trillion yen.

Introduced in December, the three-month loans at a fixed rate of 0.1 percent are intended to nourish credit flows and reduce longer-term interest rates.

The seven-member board voted unanimously to keep its key interest rate at a super lean 0.1 percent. In a statement, it pledged to maintain an “extremely accommodative financial environment” for the time being. The central bank has not changed the overnight call rate target since December 2008, when the policy board lowered it from 0.3 percent.

The central bank’s expected move came amid growing political pressure to take stronger action to combat falling prices, which threaten to undermine Japan’s patchy economic recovery.

“The Bank recognizes that it is a critical challenge for Japan’s economy to overcome deflation and return to a sustainable growth path with price stability,” the central bank said. “To this end, the Bank will continue to consistently make contributions as a central bank.”

The world’s second biggest economy grew at an annualized pace of 3.8 percent in the fourth quarter thanks to robust exports, but that has done little to bolster demand or wages at home. Japan’s key consumer price index, which fell for the 11th straight month in January, is expected to keep declining for the next two years.

The troubling outlook separates Japan from growing economies elsewhere in Asia, where central banks are winding down stimulus measures and tightening monetary policy low interest personal loan. Interests rates are rising in Australia and Malaysia, while central banks in China and India are reducing liquidity to control inflation.

Meanwhile, Japan struggles with a familiar foe. The country has battled periods of deflation since the “Lost Decade” in the 1990s. Lower prices may seem like a good thing, but it hamstrings economic growth by shrinking company profits, sparking wage cuts and causing consumers to postpone purchases. It also magnifies debt burdens.

The government’s ability to counter deflation with increased spending is constrained because of Japan’s ballooning debt, the highest among industrialized countries and rising. Prime Minister Yukio Hatoyama has proposed a record $1 trillion budget for the next fiscal year starting April, which will require the government to issue some 44.3 trillion yen ($492 billion) in bonds.

With limited room to maneuver on the fiscal policy front, Finance Minister Naoto Kan has repeatedly called on the central bank to do more. He wants deflation gone by the end of the year and has suggested establishing an inflation target.

The latest move may appease the government for now. But it falls short of a meaningful fight against deflation, economists say.

Richard Jerram, chief economist at Macquarie Securities in Japan, described a temporary increase in liquidity or even a modest interest rate cut as “irrelevant.” Japan needs aggressive, government-led changes to shock prices higher, he writes in a recent report.

“Japan is in such a deep deflationary hole that marginal policy changes are likely to be ineffective,” he said.

Bank of Japan expands lending to fight deflation

CINCINNATI – The Kroger Co.’s profit fell 27 percent in the fourth quarter, even as sales rose with a boost from the grocer’s gasoline incentives for regular customers.

The nation’s largest traditional grocery chain Tuesday reported profit of $255.4 million, or 39 cents per share, down from $349.2 million or 53 cents, a year ago.

Sales rose 7 percent to $18.6 billion. Excluding fuel, sales were up 2 percent.

Analysts expected 34 cents per share on $17 cash advance america.73 billion of revenue.

In the heated competition for recession-strapped households, Kroger has expanded discounts at its gas stations for regular customers, who can get at least 10 cents off a gallon for every $100 in grocery store purchases.

Kroger 4Q profit down 27 percent

NEW YORK – A hotel has opened on the edge of ground zero, and executives say the view it offers on the World Trade Center site rebuilding is a selling point.

The World Center Hotel is still under construction on some floors but began taking reservations last month. Its Web site features photographs of a memorial and the construction.

The hotel offers some rooms with floor-to-ceiling windows that open directly onto the work site. Guests and members will have access to the restaurant patio with views of giant cranes, jackhammers and metal scaffolding auto loan rates.

Australian tourist Josh Rowlands says he would like to stay at a hotel with a view of the rebuilding, especially because it’s so hard to see into the pit from the street.

But German tourist Michael Meindorfer says he thinks staying there would be too sad.

Ground zero hotel wants to attract WTC tourists

Hot News: Canadian Markets: Canadian stocks rise as commodity prices gain

In the financial turmoil of the past decade, mutual fund investing has gotten decidedly more complicated. After all, over the course of just 10 years, investors have looked on as two bear markets ravished the economy, as a pair of bull markets jolted stocks back to life, and as the Internet and housing bubbles inflated to their breaking points and then burst.

For investors, the search for the perfect mutual fund has always been something of a holy grail quest. But in the midst of the past decade's abrupt market cycles, investors have approached their fund-hunting efforts with newfound intensity. With that in mind, U.S. News has created a unique rankings system that is designed for long-term investors looking for broad access to information about funds. In the process, U.S. News has assigned scores to upwards of 4,500 distinct mutual funds.

[Use the U.S. News Mutual Fund Score and the rankings of trusted fund analysts to find the best mutual funds for you.]

Overall, the scores–which are based on data from Morningstar, Zacks, Lipper, TheStreet.com, and Standard & Poor's–take into account short- and long-term performance, risk, expenses, and future prospects.

[See our methodology.]

So what do the best mutual funds look like? To explore this, U.S. News has analyzed its top-ranked fund from each of the following 11 Morningstar categories: large growth, large value, large blend ("blend" funds have both growth and value characteristics), foreign large blend, diversified emerging markets, health, short-term bond, intermediate-term bond, intermediate government bond, world bond, and moderate allocation. Overall, the 11 category-topping funds have quite a bit in common. Here are some traits that they share:

[Slide Show: 11 category-topping funds]

High-conviction portfolios. Pat English, a comanager of FMI Large Cap (FMIHX), which is the top-scoring large-blend fund in the U.S. News rankings, likes to say that only his team's best ideas will make it into the fund's portfolio. And he means it: FMI Large Cap generally owns just 25 to 30 stocks at a time. "We're not big believers in sheer numbers of names," says English.

Neither is Don Yacktman, a comanager of the Yacktman Fund (YACKX), which tops the large-value category. At the end of 2009, the fund owned fewer than 50 securities. "Beyond a certain point," Yacktman says, "the more diversification, the more likely one will get mediocre returns."

Meanwhile, for its part, Fidelity Select Medical Equipment and Systems (FSMEX), the best-ranked health fund, finished 2009 with just under 60 stock holdings.

Broadly speaking, running a heavily concentrated fund is a risky proposition. If even one bet goes sour, the fund is certain to feel the blow. At the same time, though, concentrated portfolios allow managers to invest only in companies they know intimately. "Concentrated portfolios can be more volatile but aren't necessarily so," says Adam Bold, the founder of the Mutual Fund Store, an investment management firm with more than 65 U.S. locations.

Another measure of portfolio conviction is a fund's turnover ratio, which quantifies how frequently management trades. Funds with low ratios have buy-and-hold mentalities and tend to have high degrees of confidence in their picks. Overall, the 11 funds have turnover ratios that are an average of 78.7 percent lower than their category averages.

Low costs. It's one of the perennial mutual fund debates: Should investors focus primarily on costs or on returns? In a vindication of cost-based fund picking, the 11 mutual funds examined by U.S. News have expense ratios (a measure of annual fees) that are, on average, 0.32 percent less than their category averages.

[See Should You Deep-Six Your Mutual Fund?]

"Costs play a big role in fund returns. You tend not to see it if you look too close up. In other words, if you look at a single year, that advantage of, say, 50 basis points or whatever isn't that big, especially in years like '08 or '09 when you've got huge negative or positive returns," says Russel Kinnel, Morningstar's director of mutual fund research. "But over time, it adds up to quite a significant difference."

Overall, this phenomenon is somewhat circular in nature. "Good performance leads to more assets, and more assets generally drive down expenses," says Kinnel.

Still, costs are one of the most contentious issues in the fund industry. "There are some things in life that are worth paying more for. There's a reason that a Mercedes-Benz costs more than a Kia," says Bold. "To me, it doesn't matter how much you pay the mutual fund company. What counts is how much they pay you cash till payday advance."

Ultimately, though, this tension between costs and returns may be more imagined than it is real: The funds that top the U.S. News rankings provide superior returns, and they do so at low costs.

Talented and consistent management. Six of the 11 category leaders have at least one manager who has been on board since the fund's inception. Overall, this continuity of management seems to boost a fund's ability to consistently apply strategies that will pay off in the long term.

English, who has been a comanager of FMI Large Cap since it launched in 2001, says low manager turnover helps funds develop coherent cultures. "The main thing is the culture," he says. "You need continuity because it's hard to spread that culture if you have a lot of change."

For his part, Bold says that picking a good management team is one of the most important decisions an investor can make. "The name of the fund doesn't matter," he says. "What counts are the people who are every day making the buy, sell, and hold decisions."

Among the top-performing funds in the U.S. News rankings, the biggest question mark in the management arena pertains to TCW Total Return (TGLMX), the best-scoring fund in the intermediate-term bond category.

Late last year, TCW fired Jeffrey Gundlach, who had served as the company's chief investment officer and was a celebrated comanager of the flagship Total Return fund. In the aftermath of the firing, Philip Barach, the other Total Return manager, also left TCW, as did dozens of other employees.

[For more on Gundlach's ouster, see The Decade's 10 Worst Fund Disasters.]

With the fund's two managers out the door, TCW quickly turned control of Total Return over to Tad Rivelle of Metropolitan West Asset Management. Rivelle brings significant experience to the job, but it remains to be seen how the shake-up will affect the fund's long-term performance.

Another management theme is that all 11 category leaders have active managers. "Actively managed funds are going to have a wider dispersal of performance," says Kinnel. "Those are the ones that are always going to be at the top and bottom of the rankings." At its most basic level, this cuts to the core of the active-passive debate. A good index fund, Kinnel says, will consistently earn investors market performance, but that's as far as it will go–its mandate isn't to beat the market.

Downside protection. After two bear markets in the course of a single decade, investors have learned the hard way that high-quality funds not only will earn more than the competition during strong markets but will also lose less during downturns.

The 11 top performers' returns beat their category averages by an average of 7.4 percent in 2008, primarily thanks to some well-timed defensive positions. Some residual indicators of these funds' defensive stakes still linger, largely in their cash holdings. As recently as the end of last month, for example, Sextant International (SSIFX), the top-ranked foreign large blend fund, had roughly 40 percent of its portfolio stashed away in cash.

Many of the other top-ranked funds also have large cash stakes. "When we feel that we've filled up on the really good ideas … we'd just as soon sit on some cash. If the opportunities are there, we'll buy things. It's just a matter of if they aren't attractive enough, we'd rather just sit on some [cash]," says Yacktman, whose fund had upwards of 11 percent of its portfolio in cash at the end of last year.

The reason large cash positions helped during the downturn is that they shielded funds from losses in the stock and bond markets. "A lot of the funds with good cash stakes naturally lost less in 2008," says Kinnel. "I don't think there's anything inherently good or bad about running with a lot of cash. I think it's just what works for the manager."

Another way the 11 funds protect their investors during bear markets is through careful stock picking. "We spend a great deal of time protecting the downside by making sure we don't overpay for anything on the front end," says English.

Meanwhile, some of the top-ranked funds hold up decently during recessions because of the very nature of their mandates. Health funds, for example, are commonly considered to be among the most defensive of investments, and they tend to outperform their competitors during weak markets. In 2008, Fidelity Select Medical Equipment & Systems lost 23.4 percent. By comparison, the S&P 500 was down by 38.5 percent that year.

The Best Mutual Funds for 2010

ATHENS, Greece – Greek drivers lined up for gas at the few stations still open Friday as a customs strike against government austerity measures left many pumps running dry.

The fuel shortage was the first serious consequence of growing labor protests against the Socialist government’s emergency spending cuts program, aimed at easing the debt crisis in Greece and shoring up market confidence.

Customs workers have extended their strike against salary freezes and bonus cuts through next Wednesday, when unions across Greece will hold a general strike that is set to bring the country to a standstill.

European finance ministers have told Athens it must demonstrate signs of fiscal improvement by March 16 or it will be ordered to impose even tougher budget cuts. Greece has promised to slash its deficit from an estimated 12.7 percent of gross domestic product to 8.7 percent this year.

Finance Ministry officials say they are under EU pressure to ax the public servants’ so-called “14th salary.” Greek workers get their annual salary divided into 14 payments, with two of them given as holiday bonuses, in a measure originally designed to alleviate those with low incomes.

“We would consider cutting the 14th (salary) to be an act of war,” said Yiannis Papagopoulos, leader of Greece’s trade union umbrella group, the GSEE.

“The measures must be socially just. And this is something that we have not seen so far. They are generally aimed at wage-earners and pensioners, while business remains immune sears kerosene heaters. It is finally time for those who for so many years gathered riches to pay up, invest, and help deal with the major problem at this time, which is unemployment.”

The customs walkout has hampered imports and exports, but the supply of fuel has been the most affected. Gas stations around greater Athens were rationing fuel while stocks lasted. Traffic policemen were posted at some gas stations in Athens as cars queued for hundreds of meters (yards).

“We’re out of regular unleaded, and now we’re only selling diesel,” said attendant Ioanna Antoniou at a gas station in the northern Athens suburb of Halandri. “There were a lot of cars lined up here earlier while we still had some unleaded left.”

Antoniou said the gas station had rationed fuel to limit sales to euro20 ($27) per customer so they could serve more people.

Taxis also held a 24-hour strike Friday, protesting parts of the austerity package that increased fuel tax and will force them to issue receipts. Taxi drivers chanting “The measures mean unemployment” staged a noisy protest in central Athens that choked traffic.

“These measures won’t do anything, all they will do is throw us out of work,” cab driver Anastasis Damianidis said. “We can’t become tax collectors — that’s what they’re trying to do. We will keep demonstrating.”

Fuel shortage hits Greece as strikes grow

BRUSSELS – European Union leaders on Thursday offered Greece moral support but no money to help it weather a debt crisis — vague assurances that didn’t calm the market fear that has shaken the entire EU and undermined the shared euro currency.

The 16 countries that use the euro said only that they “will take determined and coordinated action, if needed, to safeguard financial stability in the euro as a whole.”

But no money or loan guarantees were put on the table in the statement from a summit meeting in Brussels.

Markets appeared disappointed at not seeing a concrete backstop to ward off a potential default by Greece, which needs to borrow euro54 billion this year to cover its outsized budget deficit.

The Greek crisis is the leading edge of the debt troubles that have hit governments in the developed world during the world’s three years of economic turbulence, as they run up deficits bailing out banks and stimulating their economies.

A default would be a serious blow to Europe’s monetary union, and fears that Athens might not be able to pay its debts have already led markets demanding higher borrowing costs for Greece.

There are also concerns that the contagion could spread to other financially wobbly countries, such as Portugal and Spain, and that other governments will have to pay more to borrow.

The leaders said Greece had not requested financial support and called on Athens to push through “in a rigorous and determined manner” its budget cuts that have already triggered protests and strikes — and to prepare bigger cuts if needed.

Neil Mackinnon, global macro strategist at VTB Capital said, “it just looks like a pledge of solidarity, but no actual details of a program which is why the euro is still in the doldrums.”

“They have to stop this right now…they are firefighting at the moment but they need to put out this fire right now,” said Neil Mellor, currency strategist at Bank of New York Mellon. “It won’t appease those looking for a bona fide rescue plan.”

The euro hit a new nine-month low of $1.3635, having been as high as $1.38 earlier in the day on hopes of more substantive Greek bailout news. It was $1.51 in December. German and French stocks were down, while shares in Britain, which doesn’t use the euro, rose.

Markets see Greece at risk of defaulting on its massive borrowings because it faces several years of sluggish growth and mounting debt that current austerity plans may not be able to stem payday loans guaranteed no fax.

Those fiscal problems have also exposed the vulnerability of Europe’s monetary union in times of crisis. Euro members countries agree to limit their budget deficits to 3 percent of gross domestic output because overspending can undermine their shared currency. But those deficit rules have been broken repeatedly and have not been prevented Greece and other countries from trouble.

The leaders may make more comments on Greece later in the day.

Luxembourg government spokesman Guy Schuller said no firm bailout figures are on the table at this point, but many options are under discussion. “Paris and Berlin are at the head” of efforts that would be shared by all 16 eurozone nations, he said.

Among possibilities for Greece that have been floated in recent days are EU member countries guaranteeing Greece’s debt, a special credit line for the Greek government, and bilateral loans.

But German Chancellor Angela Merkel talked down a full financial bailout, but said other European governments would not leave Greece in the lurch.

“We won’t let Greece be alone but there are rules and they have to be respected and based on that we’ll issue a statement and an explanation,” she said.

Greece needs to borrow euro54 billion (nearly $75 billion) from bond markets this year to plug its budget gap. So far it has been able to borrow from markets but is facing increasing interest costs as markets price in higher risk of a possible default.

Greek Prime Minister George Papandreou has promised to reduce Greece’s deficit to 8.7 percent of gross domestic product this year, from 12.7 percent last year, the highest in the EU and four times above an EU limit.

But markets doubt Greece’s credibility after it admitted falsifying statistics for years to make the deficit look smaller. They also worry that Greece can’t carry out any cuts because it risks social unrest.

Greek workers shut down schools, grounded flights and walked out of hospitals Wednesday to protest austerity measures, and a much broader strike is planned for Feb. 24.

___

Associated Press writers Pan Pylas, Angela Charlton and Leslie Patton in Brussels contributed to this report.

EU leaders offer Greece support, but no money

PORT WASHINGTON, N.Y. (MarketWatch) — Beware of the law of unintended consequences.

Judging by the testimony that Federal Reserve Chairman Ben Bernanke is expected to give later this week to the House Financial Services Committee, it won’t be long before the central bank starts to drain some of the excess liquidity now sloshing around in the financial system, thus raising interest rates. (See WSJ story on outline of Fed’s ‘exit strategy.’)

It can’t come a moment too soon for the silent majority — the nation’s savers.

In its efforts to shore up the banking system, the Fed has neglected the needs of those who save. And in case you did not know it, savers make up the bulk of the population.

Business and governments are net borrowers; consumers are net savers. Foremost among those who save are those who are trying to build a nest egg for their retirement — not to mention those who are actually retired.

Lately, these folks and others who live on a fixed income have fallen behind the eight-ball. Besides losing some $13 trillion in wealth because of the drop in prices of homes and stocks several years ago, they have to deal with below-radar inflation, which is eroding the purchasing power of their savings. ( See March 24, 2009 column.)

To make matters even worse, many retirees are finding that their monthly Social Security payment has shrunk, compared with the amount they received last year, while those who are veterans on disability did not receive their annual cost-of-living increase in their pensions this year.

Since the end of 2008, those who keep their savings in a regular savings account at their neighborhood bank have earned virtually nothing on their savings because of the Fed’s ultra-low interest rate policy paydayloans.

The key overnight federal funds rate on which these interest rates are based has hovered in a range of 0%-0.25% for over 15 months.

In order for savers to earn a decent rate of return on their funds, their banks require them to lock up their money in a certificate of deposit for a number of years. Beyond that, savers have to turn to longer-dated Treasurys or take a chance with junk bonds or the stock market.

Borrowers, naturally, like low interest rates, especially the biggest borrower of them all — the federal government. The same goes for the banks.

Speaking of which, bedsides receiving less than a penny per dollar in their savings accounts, savers many times have to pay their banks a fee for maintaining these accounts as well as their checking accounts.

To add insult to injury, the banks have drastically reduced their lending to individuals and to most businesses. Instead, they prefer to take advantage of the big difference between their cost of funds and yields available on longer-dated securities and buy Treasurys.

Playing the yield curve, as this is called, has enabled the banks to earn hefty profits, thus hastening their return to a pink-cheeked state of health.

Since the banks are apparently in good financial shape, it’s time for the Fed to consider the needs of the silent majority — the nation’s savers — and raise rates so that they can become healthy, too.

Irwin Kellner: It’s time for the Fed to help savers

CAMARILLO, Calif. – The average price of regular gasoline in the United States fell 5.76 cents over a two-week period to $2.67.

That’s according to the national Lundberg Survey of fuel prices released Sunday.

Analyst Trilby Lundberg says the average price for a gallon of mid-grade was $2.80. Premium was at $2.91.

Cheyenne, Wyo., had the lowest average price among cities surveyed at $2 short term personal loan.38 a gallon for regular. Honolulu was the highest at $3.32.

In California, a gallon of regular cost an average of $2.94.

Fresno had the state’s least expensive gas at $2.86 a gallon. San Francisco remained the steepest at $2.97.

Average gas prices down 5.76 cents nationwide

NEW YORK (MarketWatch) — The dollar advanced Thursday, while the euro fell to a seven-month low and the Japanese yen attracted some buyers, amid renewed fears about fiscal problems facing a handful of European countries and as a U.S. report showed an unexpected increased in jobless claims last week.

The dollar index , which tracks the greenback against a trade-weighted basket of six major currencies, rose to 79.950 from 79.369 late Wednesday.

ECB’s Trichet Sees Major Challenges Ahead

European Central Bank President Jean-Claude Trichet told reporters Thursday the euro zone still faces major challenges but is heading in the right direction. He was speaking shortly after the ECB kept interest rates steady.

For its part, the euro tumbled on renewed fears over debt problems in the 16-nation euro zone, and as the European Central Bank kept a key benchmark rate steady.

The single currency declined 1% to $1.3736, down from $1.3906 in North American trading late Wednesday.

The British pound also fell after the Bank of England kept rates steady, down 0.3% to $1.5851.

But the dollar lost ground to trade at 88.65 Japanese yen, down from 91.01 yen late Wednesday. The yen’s a frequent beneficiary of movements out of riskier assets to a more stable one.

The euro enjoyed a short-lived respite from pressure Wednesday after the European Commission cautiously endorsed Greece’s plans to slash its budget deficit over the next three years. But the selling pressure resurfaced as the focus turned to Portugal and Spain.

‘We’re short-term bearish on the euro.’

Ray Farris, Credit Suisse

The spread between government bonds issued by Greece and Portugal widened versus comparable German bunds, highlighting worries about the fiscal outlook for nations on the so-called periphery of the euro zone. Concerns over those countries also pushed the cost of insurance for sovereign debt above the cost for U.S. companies for the first time payday advance. Read about the euro zone’s persistent credit worries.

“Over the next several months, we’ll probably have a succession of negative news associated the fiscal stress coming, first with Greece but increasingly into other sovereigns,” said Ray Farris, head of foreign-exchange strategy at Credit Suisse. “We’re short-term bearish on the euro.”

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Those concerns also weighed down U.S. stocks, with the Standard & Poor’s 500 index dropping nearly 2.5%. While less consistent in recent months, since the beginning of the credit crisis the dollar has tended to benefit when stocks fall, which traders take as a flight from risky assets to the relative safety of the U.S. currency.

That dynamic was overshadowing weak employment data in the U.S. during the session — one day before the government’s pivotal report on nonfarm payrolls for January, due out Friday.

The Labor Department said first-time claims for state unemployment benefits rose to the highest level since mid-December, up 8,000 to 480,000. The consensus forecast of Wall Street economists had been for claims to drop to 455,000. See more on U.S. jobless claims.

Also affecting trading in the British pound, Bank of England policy makers called a halt to its 200 billion pound ($319 billion) program of asset purchases but left the door open to resume purchases if it’s deemed necessary.

Currencies: Dollar up to 7-month high as risks seen in Europe

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