Singapore: The US dollar tumbled in Asian trade on Monday as Lehman Brothers said it would file for bankruptcy, heightening concerns over the US financial system’s stability and sparking talk of a possible Federal Reserve rate cut.
The yen seemed headed for its biggest daily gain since early 2002 as investors consider it a safe haven, though trade was thin with Japan on holiday.
The dollar sank 2.3% to 105.45 yen from 107.86 late on Friday, while the euro dropped to 152.26 yen from 153.43.
The euro was quoted as far as $1.4479, up 1.7% since Friday.
The Federal Reserve launched a series of emergency measures on Sunday to calm financial markets and ease any trading disruptions that could arise from a collapse of Lehman.
One of the biggest changes the Fed made was to accept equities as collateral for cash loans at one of its special credit facilities, the first time that the Fed has done so in its nearly 95-year history.
US equity market futures sank on Monday while Treasuries climbed on the worries about Lehman after talks to rescue the Wall Street investment bank faltered and after a media report said insurer AIG was seeking emergency funding.
Lehman Brothers Holdings said on Monday it would file for bankruptcy protection with a New York court. It said none of its broker-dealer subsidiaries would be included in the filing.
Meanwhile, there were reports Bank of America Corp has agreed to acquire Merrill Lynch & Co Inc for $44 billion.
Ten of the world’s biggest banks committed to establish a $70 billion borrowing facility to bolster worldwide liquidity and reduce volatility in what they called an “extraordinary market environment.”
Bill Gross, head of bond fund Pimco, told Reuters before Lehman’s announcement that a bankruptcy filing could set off a wave of position unwinding around the globe.
Analysts said uncertainty was so high that the major central banks might have to step in to soothe market nerves, noting the Federal Reserve was due to hold its policy meeting on Tuesday.
The Bank of Japan said it was monitoring market developments and cooperating with the Federal Reserve and authorities from other countries.