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NEW YORK: The euro and the pound slid against the US dollar on Monday after the rescue of several European banks deepened worries about the global financial system.
The currency market showed little reaction off US lawmakers' rejection of a 700-billion-dollar financial rescue plan touted by President George W. Bush's administration as vital to avert economic collapse.
The euro stood at 1.4432 dollars around 2100 GMT, down sharply from 1.4613 late Friday.
The pound dropped to 1.8068 dollars from 1.8452.
But the dollar weakened against the yen, trading at 104.03 yen against 105.95.
"The credit crisis has finally arrived in the heart of Europe," said analysts at the French bank BNP Paribas.
News that authorities had mobilised in one form or another to shore up faltering European banks weighed heavily on both the euro and the pound.
On Sunday, Belgian-Dutch banking and insurance group Fortis was partially nationalised by Luxembourg, Belgium and The Netherlands, and German mortgage lender Hypo Real Estate was saved by a banking consortium and a government guarantee.
On Monday, the Icelandic bank Glitner was nationalised, while the British government said it would nationalise the mortgage and loan portfolios of mortgage lender Bradford & Bingley. B&B's savings business will be sold to Spanish bank Santander.
A fourth European bank, Franco-Belgian group Dexia, could also be on the verge of a state rescue deal after the group saw more than one quarter of its stock market value wiped out on liquidity concerns.
The Belgian government announced that it had tentatively agreed, along with its three main regions and shareholders, to help prop up the embattled Dexia.
"The government bailouts have served to highlight that the financial turmoil which originated in the US is clearly a global problem," said Lee Hardman of the Bank of Tokyo-Mitsubishi.
"In contrast, it appears that both UK and European authorities still remain reactive rather than proactive in their response to dealing with the financial crisis undermining investor confidence in UK and European assets."
The euro was further undermined by a report that an index measuring eurozone business and consumer confidence had fallen in September to its lowest reading since November 2001.
Analysts at Citibank said the performance "suggests that the euro area is probably already in recession."
"As a result, we expect that the gathering evidence of a sharp economic downturn and falling inflation expectations, plus risks of a vicious circle between economic weakness, deteriorating credit quality and financial strains, will lead both the European Central Bank and the Bank of England to cut (interest) rates soon.
"Both may cut in October, especially if financial market conditions worsen further in coming days."
In late New York trade, the dollar stood at 1.0891 Swiss francs, down from 1.0898 late Friday. - AFP/de
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