Dollar hit in Asia by US debt fears

TOKYO: The dollar fell in Asia on Friday as investors ran for the euro and yen on growing fears the US government shutdown could lead to a catastrophic debt default.

The greenback bought 97.08 yen in Tokyo afternoon trade, down from 97.27 yen in New York, where it at one point slipped below the 97-yen mark.

The decline came as the Bank of Japan held off fresh monetary easing measures despite fears about the impact of a sales tax hike on the country's economic recovery and the Washington budget crisis.

The euro was trading near nine-month highs at $1.3625 from $1.3618, following upbeat eurozone data, although the single currency weakened to 132.31 yen from 132.49 yen.

"Until this US political show ends the (dollar-yen) pair will likely trend lower," said a senior dealer at a Japanese bank.

That was underscored by Japanese Finance Minister Taro Aso on Friday as he urged the US to resolve political gridlock in Washington and warned of grim "consequences" for the global economy if it leads to a debt default.

"I think this could likely result in a situation where the dollar will be sold and the yen will be bought," he told reporters.

The yen has already soared to multi-month highs against the dollar, as traders move out of the greenback and into the safe haven of the Japanese currency.

Also weighing on dollar sentiment were data showing the US services sector, the bulk of the economy, slowed sharply in September after two months of acceleration, offsetting better-than-expected jobless claims figures.

But the greenback's losses were tempered by end-of-week buying from Japanese importers, as well as hopes for a compromise in Washington that reopens the US government.

With Republicans and Democrats unable to find agreement on the budget there are fears the row could continue up to a mid-October deadline to raise the country's borrowing limit before the government runs out of cash.

If the two sides do not increase the debt ceiling Washington will not be able to service its debts and will default, which economists warn will spark global economic devastation.

However, the stand-off has also thrown into doubt a timeline for the US Federal Reserve to cut back its monetary easing drive, putting further pressure on the greenback.

"The chances of the US starting (to wind down its stimulus) this year continue to dwindle," National Australia Bank (NAB) said, noting there were just two more Fed policy meetings before year's end.

The dollar was mixed against other Asia-Pacific currencies.

It slipped to 61.45 Indian rupees from 61.87 rupees the previous day, to Sg$1.2473 from Sg$1.2497, to 43.09 Philippine pesos from 43.11 pesos and to Tw$29.34 from Tw$29.39.

The greenback rose to 11,371 Indonesian rupiah from 11,297 rupiah, to 1,071.35 South Korean won from 1,069.66 won and to 31.29 Thai baht from 31.24 baht.

The Australian dollar firmed to 94.36 US cents from 93.82 cents, while the Chinese yuan changed hands at 15.88 yen against 15.98 yen.