Agence France Presse

LONDON: The dollar jumped on Friday against major rival currencies as world stock markets surged skywards on hopes of a US government plan to rescue troubled financial firms, traders said.

The European single currency sank to 1.4197 dollars from 1.4348 in New York late on Thursday.

Against the Japanese currency, the dollar leapt to 107.46 yen from 105.37 yen.

Gold fell in value, having bounced higher earlier this week as investors had sought a financial safe-haven.

Investors were waiting to hear new developments after reports that the US government was preparing a lifeline to wipe out the bad debt that has weighed on banks and set off the current financial crisis.

US financial authorities have meanwhile banned short-selling — when investors borrow company shares to sell in anticipation of profiting from a fall in value — in a bid to help crisis-hit markets. Britain on Thursday declared a halt to short-selling in financial sector stock. “US Treasury Secretary (Henry) Paulson and Federal Reserve Chairman (Ben) Bernanke met with lawmakers yesterday (Thursday) to push a plan that would move troubled assets from the balance sheets of American financial companies into a new institution,” said Commerzbank analyst Antje Praefcke.

“The initiative is aimed at removing the devalued mortgage-linked assets at the root of the worst credit crisis since the Great Depression.

“Financial markets very much appreciated this plan. Stock markets rallied all over the world. The optimism towards the US economy and the dollar is now clearly visible again,” added Praefcke.

However, other analysts warned that it would not be so easy to quell market worries over the global financial system. “We can’t expect new measures to have immediate, drastic effects,” said Kenichi Yumoto, vice president at Societe Generale’s foreign exchange sales and trading department.

“It is hard to imagine the market turbulence will come to an end soon.”

The dollar has been under pressure for several days in reaction to major upheavals in the US banking and insurance sectors that have prompted controversial and costly government intervention.

The US Federal Reserve on Thursday joined central banks around the world to provide more than 300 billion dollars to keep credit flowing through jittery global money markets.

On Friday, the European Central Bank and Bank of England each lent an additional 40 billion dollars (28 billion euros) to financial institutions struggling to obtain funds amid a worldwide squeeze on credit.

In early London trading on Friday, the euro changed hands at 1.4197 dollars against 1.4348 late Thursday, at 152.43 yen (151.21), 0.7900 pounds (0.7889) and 1.5952 Swiss francs (1.5852).

The dollar stood at 107.46 yen (105.37) and 1.1244 Swiss francs (1.1047).

The pound was at 1.7961 dollars (1.8185).

On the London Bullion Market, the price of gold fell to 834.56 dollars per ounce from 863 dollars late on Thursday.

This article was derived from thepost.com.pk/BizNewsT.aspx?dtlid=183883&catid=7