U.S. dollar falls to record low

Partially printed new US$20 bills at the Bureau of Engraving and Printing in Washington in this file photo. The dollar fell to a record low against the euro on Monday and a six-week low against the yen, hurt by continuing worries about the U.S. subprime mortgage sector and some unwinding of yen carry trades.

TOKYO (Reuters) - The dollar fell to a record low against the euro on Monday and a six-week low against the yen, hurt by continuing worries about the U.S. subprime mortgage sector and some unwinding of yen carry trades.

The yen seesawed, sliding broadly in early Asian trading and hitting record lows against the euro in a move that traders attributed to speculative buying of sterling against the yen.

But the Japanese currency later rebounded to hit a six-week peak against the dollar of 120.80 yen on electronic trading platform EBS, the yen's highest level since early June.

The yen extended its gains after rallying on Friday, when a fall in U.S. equities dampened investors' appetite for risk and prompted them to unwind some bets against the low-yielding currency.

"It seems like there is some risk reduction taking place, I guess some unwinding of yen carry trades," said Yuji Matsuura, joint general manager for Aozora Bank's forex and derivatives trading group.

"There was a strange move around 4 a.m. to 5 a.m. this morning," said Matsuura, referring to the yen's early morning fall. "But after that, the market has been persistently selling dollars and euros against the yen.

Carry trades involve the selling of low-yielding currencies such as the yen to invest in higher-yielding currencies and assets.

The euro stood at $1.3830 as of 3:01 a.m. British Time, hovering near a record high of $1.3846 struck earlier on Monday on EBS.

The euro fell around 0.3 percent against the yen to 167.20 yen, having pared its gains after surging to a record high of 169.05 yen on EBS early on Monday.

Defaults on subprime mortgages, made to borrowers with weak credit, and mounting losses on bonds backed by such debt have rattled financial markets and soured general dollar sentiment.

YEN SEESAWS

The dollar fell 0.3 percent to 120.90 yen, holding near its six-week low.

The dollar had jumped to around 122.20 yen in early Asian trading, but later gave up its gains.

Traders said the yen's initial slide this morning may have partly been due to newspaper polls published on Monday that showed that Japanese Prime Minister Shinzo Abe's ruling camp looked set to lose a July 29 upper house election after falling further behind the opposition.

Rather than any concrete factors, however, the yen's early morning fall probably had more to do with the way traders' positions were tilted than anything else, market players said.

"This a bit unusual but I think the market may have been long the yen at least in the short term, and that there was an attempt to trigger some stop-loss position unwinding," said a trader for a major Japanese bank.

The currency matching system of news and information provider Reuters Group RTR.L suffered a temporary outage on Monday, forcing some traders to switch to alternative venues or trade over the phone.

The outage hobbled trading in currencies primarily traded over the Reuters platform, which include the British pound, and the Australian, New Zealand and Canadian dollars.

"People do seem to be having some problems," said a trader at a North American bank in Tokyo. "The market is a bit slow this morning for a variety of reasons, including this and the fact that the yen made some strange moves this morning."

(Additional reporting by Chikako Mogi and Eric Burroughs)