Dollar briefly weakens into upper 115 yen zone on equity dive

The U.S. dollar fell to its lowest level in more than five months in the upper 115 yen territory, and the euro retreated to a five-month low around the 155 yen line Thursday in Tokyo, as investors shed high-yielding currencies in the wake of an equity shakeout worldwide.

At 5 p.m., the dollar was quoted at 116.05-08 yen, down from Wednesday's 5 p.m. quotes of 116.55-65 yen in New York and 116.93-95 yen in Tokyo.

It moved between 115.71 yen and 116.74 yen during the day, changing hands most frequently at 116.00 yen. Its intraday low was the lowest since early March when it hit 115.55 yen.

The euro traded at $1.3437-3440 and 155.97-156.01 yen, compared with late Wednesday's quotes of $1.3438-3448 and 156.70-80 yen in New York and $1.3490-3492 and 157.74-78 yen in Tokyo.

At one point, the euro dropped to $1.3386 -- its lowest level since mid-June -- and to 155.01 yen -- its lowest level since early March, dealers said.

The dollar and the euro remained under selling pressure against the yen as market participants took falls in stocks worldwide as a sign that they need to exit from carry trades to reduce their exposure to high-yielding but risky assets, dealers said.

In carry trades, investors borrow currencies of countries with low interest rates to invest them in currencies of countries with higher interest rates, seeking bigger returns.

''Until recently, market players have been building up positions in high-yielding currencies for high investment returns, backed by firm stocks,'' said Keizo Tanaka, senior currency dealer at Resona Bank. ''But now with equities falling everywhere, investors are left with no other choice but to do the opposite and take their bids off the table.''

On Thursday, Japan's Nikkei stock index briefly fell below the 16,000 line for the first time in nearly nine months, after U.S. stock prices tumbled overnight on deepening concern about U.S. subprime mortgage woes. Other Asian stocks also dived Thursday.

Brokers said market players are increasingly concerned that the equity markets may continue to fall, resulting in a slowdown in the global economy. As a result, more market participants reduced their exposure to high-yielding currencies, they said.

''Currency market traders' main concern is shifting from U.S. subprime mortgage market jitters to a possible slowdown of the global economy triggered by sluggish stocks worldwide,'' said Toru Umemoto, chief currency strategist at Barclays Bank Plc.

Some dealers said the dollar may fall further as it may take time for investors to regain confidence in investing in risky assets.

''There was still some buying of the dollar on dips,'' said Koji Fukaya, senior currency strategist at Deutsche Bank. ''But many investors are still wary that adjustments in the U.S. subprime mortgage sector may be prolonged.''