FOREX-Dollar up on safety buying after AIG rescue news
* Dollar up versus most currencies on safety buying
* U.S. $30 bln commitment to AIG adds to concern about banks
* Yen gains against dollar and euro on exporter hedging
TOKYO, March 2 (Reuters) - The dollar rose against most other currencies on Monday after sources said the U.S. government would pour a further $30 billion into embattled insurer American International Group (AIG.N), fuelling safety buying of the greenback.
The AIG move follows a new rescue plan for Citigroup (C.N), adding to fears that more financial firms may need similar rescue plans, analysts said.
But traders said the dollar looked relatively less risky than other major currencies as U.S. authorities were seen to be taking swift action to overcome the crisis in the financial system.
The yen was among the few to climb against the dollar as the currency's sharp rebound late last week from a weekly slide worried Japanese exporters and prompted them to sell the dollar early to hedge their overseas earnings.
"The market has become increasingly concerned that the need for rescues is broadening to other major U.S. banks after Citigroup and AIG," said Kengo Suzuki, a currency strategist for Shinko Securities.
AIG's board approved a new rescue package on Sunday that includes more lenient terms on an existing government investment in its preferred shares and a lower interest rate on a government credit line, sources familiar with the matter said. [ID:nN01330373]
Details will be announced around 1100 GMT, when AIG is expected to report a fourth-quarter loss of about $60 billion.
The euro fell 0.4 percent to $1.2575 EUR=, while it also dropped 0.6 percent against the yen to 122.65 yen EURJPY=R, according to Reuters dealing system.
Traders said the euro came under pressure after European leaders rejected a mass bailout of central and eastern European countries on Sunday, clouding the outlook for the euro zone, already hit hard by the fast-deteriorating east European economies. [ID:nL1547427]
The dollar was adding to gains made late last week against the euro after the U.S. government said it would raise its equity stake in Citigroup to as much as 36 percent and economic data showing the U.S. economy had its deepest contraction since 1982. [ID:nN27330392]
The dollar edged down 0.2 percent to 97.50 yen JPY= in choppy trade in which it fell as low as 96.94 yen on Reuters dealing system, but rebounded quickly to pare losses.
The New Zealand dollar fell to a six-year low as a gloomy economic outlook and weak share prices saw investors turn more risk averse, taking the shine out of one of the remaining high-yielding currencies. The kiwi was down 1.5 percent at $0.4933 NZD=D4 after falling as low as $0.4913, the lowest since November 2002.
The Australian dollar slid to its lowest in a month after gloomy data increased the likelihood the economy contracted in the fourth-quarter. The Aussie was down 0.8 percent to $0.6332 AUD=D4 after hitting day's low at $0.6295.
YEN TO TRADE IN A RANGE
Analysts said the yen was likely to be range-bound versus the dollar below a 3-1/2-mth low of 98.72 yen hit last week as the market focus this week will be more on economic data and central banks' interest rate decisions.
"We still have to see if market players think they have already seen enough to sell the yen after weak GDP, but there's no major event out of Japan in sight," said Masaki Fukui, a senior market economist at Mizuho Corporate Bank.
The yen has fallen nearly 11 percent against the dollar since hitting a 13-year high of 87.10 yen in January, with the slide steepening after poor GDP numbers and the resignation of the finance minister after he was forced to deny being drunk at a G7 meeting last month.
While the health of the global financial system and stock market downturn will be of most market interest, investors will be closely watching key U.S data including Monday's U.S. manufacturing index from the Institute for Supply Management and jobs data later this week for more clues on the depth of the recession.
Rate decisions by the Reserve Bank of Australia and the Bank of Canada on Tuesday and the Bank of England and the European Central Bank on Thursday will be another market focus. (Editing by Michael Watson)
