Dollar, yen gain as investors flee risky assets

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - The U.S. dollar and yen rallied on Monday as plunging stock markets and fears of global recession prompted investors to abandon risky trades and seek shelter in those currencies.

The yen hovered near 13-year peaks against the dollar and rose to its highest since May 2002 versus the euro despite a statement of concern by finance officials from the Group of Seven major industrial nations about excessive volatility in the Japanese currency.

The G7 said it would continue to monitor markets closely, and cooperate as appropriate, raising prospects for a coordinated currency intervention. For more se

"This is a continuation of deleveraging and unwinding of risk that has been happening the past week and this has benefited the yen and the dollar," said Omer Esiner, senior market analyst at Ruesch International in Washington.

"The surge in the yen has raised the possibility of a Bank of Japan intervention. I would imagine the BoJ may come in if dollar/yen hits below 87 or 85 yen," he added.

The Japanese unit has surged as investors unwind carry trades, which use the low-yielding yen to buy everything from higher-yielding currencies to stocks and commodities. Such trades have collapsed in recent weeks as market players have been forced to sell assets to raise cash.

The dollar, which on Monday hit a fresh 2-1/2-year high versus the euro, was also a beneficiary of global deleveraging. Investors had used dollar-denominated loans to pump up investments elsewhere. When the crisis escalated over the summer, borrowers began calling in these loans, resulting in a scramble for dollars.

In early New York trading, the dollar was down 1.4 percent against the yen at 92.97 yen, pulling back after rising to about 94.48 yen after the G7 warning. On Friday the U.S. currency had slid to a 13-year low of 90.95, according to electronic trading platform EBS.