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US dollar gains ground as global credit crunch looms

The US dollar gained on the euro on Friday as investors turned to the greenback as a safe haven amid fears of a looming global financial credit crunch.

The euro was at US$1.3632 around 9pm GMT, down from US$1.3743 late on Thursday.

The euro-dollar trade was volatile this week, with the euro hitting a record high of US$1.3852 on Tuesday and falling as low as US$1.3628 on Friday, its lowest level in more than two weeks.

The US dollar, meanwhile, was at ?118.60 compared with ?118.68 on Thursday.

Analysts said that investors, anxious that a credit squeeze brought on by a sharp deterioration in the key US housing market was about to materialize, were dumping shares for a second day in a row amid shrinking appetites for risk.

Analysts are concerned that the faltering US housing sector will hurt banks and finance companies enough to curb the availability of credit on which the world economy feeds.

That, in turn, could hurt private equity groups because their takeover bids are often financed by large amounts of bank debt.

Under such circumstances the dollar was finding favor as a safe-haven currency, notably as investors fear that weakness in the US subprime market, where defaults were rising on loans made to people with risky credit, could spread to Europe and elsewhere.

"This is unlike the US-centric nature of subprime concerns over recent weeks, which only inflicted damage on the dollar as opposed to other currencies," Mitul Kotecha at Calyon said.

"The fact that subprime concerns have now become global has meant that the dollar is actually benefiting," he added.

The dollar eased a bit at one point Friday after a larger-than-expected fall in core US inflation offset a robust set of second-quarter economic growth figures. Lower inflation suggests that the US Federal Reserve will not raise interest rates any time soon, thereby putting downward pressure on the US currency.

According to the US Commerce Department, gross domestic product grew 3.4 percent between April and June compared with the same period a year ago, which was slightly faster than the 3.2 percent economists had expected, and up from a revised 0.6 percent pace in the first quarter.

In late New York trading, the US dollar was at 1.2082 Swiss francs, up from SF1.2032.

The pound stood at US$2.0240, down from US$2.0484.
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