FOREX-Broad dollar losses deepen, hits 3-yr low vs yen

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By Veronica Brown

LONDON, March 3 (Reuters) - The dollar's broad losses intensified on Monday, taking it to a record low against a basket of rival currencies and a three-year trough versus the yen, as concern about U.S. economic health gripped investors.

The dollar also hit a record low against the Swiss franc approaching 1.03 francs, while dollar/yen moved below 103 as worries about a U.S. recession stoked expectations of aggressive rate cuts.

The yen and Swiss franc benefited as investors unwound some leveraged carry trades, in which funds are borrowed in those low-yielding currencies to buy higher-yielding assets.

Risk aversion levels in markets were also rising as gold prices surged to a record high above $980 an ounce XAU=, with investors seeking safety as Asian and European stocks suffered from the sell-off on Wall Street last Friday. Japan's Nikkei share average .N225 tumbled 4 percent.

Shares in HSBC bucked the trend in Europe, rising almost 2 percent after the bank reported a 10 percent rise in profits last year, just below analysts' forecasts [ID:nWLB8013].

Analysts said that with U.S. authorities seemingly happy with a weaker dollar, the dollar's broad decline could deepen much further.

"I think we're into the last leg of the dollar sell-off but the big unknown is how big the leg is," said Derek Halpenny, senior currency economist at BTM UFJ.

"You can't rule out a mini crisis of confidence of some sort especially if more and more of the market believes this is exactly what the U.S. authorities want," he added.

The dollar was down around 1 percent from late U.S. trade on Friday at 102.83 yen JPY= having earlier hit 102.62 yen, its lowest since January 2005.

The euro held steady at $1.5182 EUR=, near a record high of $1.5238 hit last Friday, according to Reuters data. But the single currency shed 0.9 percent to 156.21 yen EURJPY=R

The dollar's trade-weighted index against six major currencies dropped to 73.445 .DXY, the lowest since it was created in 1973, while the Swiss franc hit a record 1.0308 per dollar CHF=.

INTEREST RATES IN FOCUS

The U.S. economic woes have heightened speculation the Federal Reserve could slash overnight rates by another 75 basis points before the end of the month to 2.25 percent and take rates below 2 percent by the end of the year.

Traders also worried about hedge funds being forced to liquidate assets following news that several U.S. banks have seized control of failing hedge fund Peloton Partners. [ID:nN29250617]

The dollar's tumble comes before central bank decisions this week that will highlight the differences in how major economies are handling the U.S. slowdown combined with the surge in commodities and inflation.

The Reserve Bank of Australia is expected to lift rates to a 12-year high of 7.25 percent from 7 percent, even as the Bank of Canada is seen cutting rates.

Unchanged decisions were expected from the Bank of England, the Bank of Japan and the Reserve Bank of New Zealand. The European Central Bank was also seen keeping rates steady, though analysts were looking to see if ECB President Jean-Claude Trichet takes a less hawkish tone.

"The risk is that Trichet gives a nod to the deepening credit crunch and the recent signs of softness in the euro area," said Robert Rennie, chief currency strategist at Westpac in Sydney. "If so, that could hurt the euro."

The ISM survey of U.S. manufacturing is due later on Monday, and analysts have been cutting their forecasts after a run of gloomy regional reports last week. The key monthly U.S. payrolls report is out on Friday.

Federal Reserve Chairman Ben Bernanke speaks on Tuesday and analysts assume he will reiterate his willingness to cut rates.

(Additional reporting by Eric Burroughs in Tokyo; Editing by Chris Pizzey)