Sagging stocks drag dollar lower versus yen

By Lucia Mutikani

NEW YORK (Reuters) - The dollar fell against the yen on Friday as investors worried that the credit crisis that has fractured the U.S. financial sector was far from over, pushing stocks lower.

The drop in U.S. shares and concerns that the credit crunch would make the funding of current account deficits difficult took some edge off the British pound and the New Zealand and Australian dollars.

"It's very difficult, even when equities begin to rally, for investors to sell the yen aggressively, considering that at any time you could have (U.S.) banks come out with massive losses," said Mark Meadows, a currency analyst at Tempus Consulting in Washington. "The risk is just too much right now."

The dollar fell to a session low of 99.110 yen. It was last trading at 99.250 yen, down 0.4 percent on the day, with U.S. stocks ending down as credit-related worries sank financial shares.

Adding to investor concerns about the U.S. financial sector, Oppenheimer & Co analyst Meredith Whitney says Citigroup Inc (C.N: Quote, Profile, Research), Wachovia Corp (WB.N: Quote, Profile, Research) and other U.S. banks are likely to announce dividend cuts in April because their earnings will not support currently scheduled payouts.

Hawkish comments from European Central Bank Governing Council member Axel Weber and news that German consumer price inflation unexpectedly accelerated in March further diminished hopes for ECB interest rate cuts in the near term, keeping the euro supported.

The euro was last up 0.1 percent at $1.5800 within striking distance of last week's historic peak at $1.5904.

CURRENT ACCOUNT DEFICIT A WORRY