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LONDON: The euro slipped against the US dollar on Thursday as world markets were shaken by news that Dubai had moved to suspend part of the debt of a major state-backed development company.
The dollar meanwhile slumped to a 14-year low point against the yen, prompting fears that a further surge could hurt a fragile recovery in Japan, the world's second largest economy.
The euro fell to 1.4989 dollars from 1.5127 dollars late Wednesday, as investors moved away from the European single currency, which is considered a higher-risk investment, analysts said.
In Asian trading, the dollar slid to 86.28 yen, the lowest level since July 1995. In later European deals, the dollar stood at 86.53 yen compared with 87.38 yen late on Wednesday in New York.
Gold scored yet another record high, breaching 1,195 dollars an ounce as the US currency waned.
The government of Dubai shocked financial markets on Wednesday when it said it would ask creditors of its Dubai World conglomerate for a debt moratorium of at least six months.
The request "fed a climate of insecurity and crisis of confidence at a time when fears are mounting about excessive public debt," said Xavier de Villepion, an analyst with Global Equities in Paris.
Among stock markets, London's FTSE index of leading shares closed 3.18 percent lower at 5,194.13 points. New York markets were closed Thursday for the Thanksgiving Day holiday in the United States.
Responding to the yen's surge, Japan's Prime Minister Yukio Hatoyama said his government must take measures to avoid slipping back into recession.
"We must take measures so that the economy will not fall into a double-dip" recession, said Hatoyama, without specifying what measures his government may take to boost the world's second largest economy.
The premier stressed that "rapid and drastic movements in foreign exchange are not desirable" but added that the day's fluctuations were due mainly to the fall of the dollar rather than a rise of the yen.
A stronger yen threatens the competitiveness of Japanese exporters, while Asia's biggest economy sank into its worst post-war recession in the second quarter of 2008 as the economic downturn hammered demand for its cars, electronics. Japan's economy has meanwhile gradually rebounded this year.
The dollar's earlier fall was driven by expectations that the US Federal Reserve would maintain its ultra-low interest rates for some time, sending investors in search of other higher-yielding assets, dealers said.
"This yen strengthening is caused by dollar selling rather than yen buying, so this is not something Japan can handle by itself," said Mizuho Securities senior technical analyst Yutaka Miura.
"This trend will continue unless the Japanese government takes action, in cooperation with the US."
In late London trading on Thursday, the euro was changing hands at 1.4989 dollars against 1.5127 dollars late on Wednesday, at 129.70 yen (132.21), 0.9087 pounds (0.9056) and 1.5070 Swiss francs (1.5080).
The dollar stood at 86.53 yen (87.38) and 1.0054 Swiss francs (0.9965).
The pound was at 1.6493 dollars (1.6703).
On the London Bullion Market, the price of gold rose to 1,182.75 dollars an ounce from 1,179.75 dollars an ounce late on Wednesday. Earlier on Thursday it had struck a record high at 1,195.13 dollars an ounce. - AFP/de
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