Japan, Korea rescue dollar

WASHINGTON – Two Asian allies rode to the U.S. dollar's rescue today following a devastating day in economic news that saw the price of oil rise to $51 a barrel, the highest in four months and the stock market's biggest freefall of the year.

Crude oil prices rose 5.8 percent on concerns that OPEC might curb supplies when it meets next month. Cold weather in North America and Europe contributed to the surge by pushing up heating oil prices.

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The hike sent stocks plunging as investors feared higher energy costs would hurt the economy. In the most active day of trading so far this year, the Dow Jones industrial average and the Standard & Poor's 500-stock index both fell more than 1.4 percent, their steepest drops since the first week of August.

Meanwhile, in what seemed like an economic triple-whammy, the dollar tumbled yesterday on worries that central banks were shifting reserves out of dollar assets. South Korea's central bank said it planned to diversify its reserves, which are the world's fourth largest, into a greater variety of currencies.

But early this morning, Japan and South Korea telegraphed soothing signals that will undoubtedly be welcomed in U.S. financial centers when they open today.

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The Bank of Korea said it won't sell the U.S. currency from existing reserves and Masatsugu Asakawa, director of the foreign-exchange markets division at the Ministry of Finance, said Japan has no plans to diversify its reserves. Japan is the largest overseas holder of U.S. Treasuries, with $711.8 billion as of December.

"Trade data suggest it will take a while before the economy picks up,'' said Yusuke Fujisawa, who manages the equivalent of $17 billion at Dai-Ichi Kangyo Asset Management in Tokyo. "That's set the stage for further selling in the yen, especially after Korea's dollar-supportive statement.''

The yen is down 2.8 percent from a five-year high reached Jan. 17 on concern the Japanese economy will struggle to recover from recession. The dollar fell the most in four months against the yen and lost 1.5 percent versus the euro yesterday after a Korean central bank report to legislators Feb. 18 showed it plans to diversify holdings and buy Australian and Canadian assets.

U.S. gold futures settled at their highest for the year yesterday as the dollar dropped sharply against its rivals, raising the allure of precious metals for overseas investors, traders and analysts said. Riding on gold's coattails, silver climbed to a two-month peak and platinum and palladium prices also gained.

Gold for April delivery on the New York Mercantile Exchange's COMEX division ended at $435.80 an ounce, up $7.40 and at its highest on a closing basis since Dec. 30. The session's trading range was $427.40 to $436.40.

The latest jump in oil prices came amid concerns that OPEC, which meets in Iran March 16, might consider production cuts for the second quarter. Demand typically slows down in the second quarter while companies in industrialized countries rebuild their stockpiles.

The Dow fell 174.02, or 1.61 percent, to 10,611.20, its lowest close since Feb. 3.

Broader stock indicators also fell substantially. The Standard & Poor's 500 index was down 17.43, or 1.45 percent, at 1,184.16, its lowest level since Jan. 31, and the Nasdaq composite index dropped 28.30, or 1.37 percent, to 2,030.32, its worst close since Jan. 25.