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Dollar surges as global fears rise and Japan tries to beat down yen

Yen
The dollar is back to playing the strongman of world currencies -- a bad sign for markets if it continues.

The buck soared Monday against other major and minor currencies as Japan intervened to halt the yen’s surge and as new worries about Europe fueled a classic rush for safety.

Markets also were on edge after securities firm MF Global filed for bankruptcy, a casualty of Europe’s financial crisis.

The DXY index of the dollar’s value against six other major currencies jumped almost 2% to 76.54, its biggest one-day move this year. But the gain just pushed the index back to where it was Oct. 20.

The dollar surged in September as Europe seemed closer to a meltdown and as global recession fears mounted. In October the buck reversed course as stock markets rallied and investors began to feel more comfortable taking risks in other currencies.

On Monday, safety considerations once again trumped everything else. The euro tumbled 2.2% to $1.383 by 1 p.m. PDT as rising Italian bond yields cast fresh doubt on Europe's financial rescue plan.

The dollar’s biggest move was against the yen, which had hit a record high against the greenback Friday, posing an ever-rising threat to Japan’s export economy.

That finally pushed the Japanese government into action Monday, selling yen and buying dollars in the open market. The dollar jumped 3.1%, to 78.18 yen from 75.82 on Friday. But the U.S. currency still is down against the yen year to date. It was at 81.12 yen at the end of 2010.

"We started currency intervention this morning in order to take every measure against speculative and disorderly moves and to prevent risks to the Japanese economy from materializing," Prime Minister Yoshihiko Noda told parliament.

In the struggling global economy every country prefers a weak currency because everyone wants to export their way back to health.

It’s not a coincidence that U.S. stocks plunged in September as the dollar shot higher. Some of the worst-performing shares in September were those of U.S. exporters such as Boeing and Caterpillar, which potentially have a lot to lose if a rising dollar makes their products more expensive overseas.

On Monday Boeing and Caterpillar helped lead the Dow Jones industrial average’s slide. The Dow fell 276.10 points, or 2.3%, to close at 11,955.01. Boeing fell 3.3% and Caterpillar lost 2.4%.

RELATED:

Stocks slump as doubts grow about Europe rescue plan

MF Global fails, first U.S. casualty of Europe debt crisis

-- Tom Petruno

Photo: A currency trader in Tokyo on Monday. Credit: Tomohiro Ohsumi / Bloomberg News

 
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