UPDATES ON SEPT 22 2008

SEPT 22 MONDY

Dollar Falls on Concern U.S. Bank Bailout Will Strain Finances .

The dollar dropped against the yen for the first time in three

days on concern a U.S. government plan to buy $700 billion

of troubled assets from banks will widen the country's

budget deficit.

The U.S. currency reached a three-week low against the euro

before reports this week that will probably show tighter lending

rules damped U.S. home sales and durable goods orders last month.

The greenback was near a one-month low against the

Swiss franc as two-year Treasury yields fell for the first

time in three days on bets the Federal Reserve will cut

interest rates.

The dollar fell to 106.59 yen as of 1:55 p.m. in Tokyo, from 107.45

in New York late on Sept. 19. The U.S. currency declined to

$1.4563 per euro, the lowest since Sept. 2, and traded at

$1.4489 from $1.4466. The dollar declined to 1.1016 Swiss

francs from 1.1054.

The dollar also fell as two-year Treasury yields dropped 8 basis

points to 2.11 percent on speculation the Fed will cut rates as

soon as next month. Paulson and Bernanke are due to testify

before the Senate tomorrow about the banking crisis.

The chances of the Fed cutting its benchmark 2 percent rate by

a quarter-percentage point at an Oct. 29 policy meeting stood

at 32 percent, up from zero a month ago, futures contracts on

the Chicago Board of Trade show.

In carry trades, investors get funds in a country with low borrowing

costs and invest in another with higher interest rates, earning the

spread between the two. The risk is that currency market

moves can erase those profits.

In carry trades, investors get funds in a country with low borrowing

costs and invest in another with higher interest rates, earning

the spread between the two. The risk is that currency market

moves can erase those profits.