London, March 14 (Bloomberg) -- The dollar fell against the euro for thefirst day in three as U.S. stock index futures dropped, indicating shareswill extend declines, sapping demand for the U.S. currency. The dollar dropped to 91.97 U.S. cents from 91.39 yesterday, after fallingas far as 92.09. The U.S. currency declined from a peak of 90.80 earliertoday. Against the yen it was little changed at 119.96. ``The equity markets are getting annihilated,'' which is pushing down thedollar, said Kit Juckes, chief currency strategist at RBS FinancialMarkets. ``The currency market is a sideshow right now.'' June futures on both the Nasdaq 100 Index and the Standard & Poor's500 Index fell their daily limit, indicating the Nasdaq Composite Indexwill extend its 18 percent drop this year, while the S&P 500 may fallfurther after declining 9 percent this year. Some analysts see the 12-nation currency making gains against thedollar in coming months, spurred by better growth prospects in the euroregion. ``The European economy will perform better than the U.S.'s this year,''said Roy Adams, who oversees about $8.8 billion at Old Mutual AssetManagers. The ECB will cut interest rates by as much as 75 basispoints this year, he said. ``That should be good for the euro, sinceeconomic growth will show up. We'll be at $1 per euro by the end of theyear.''
Central Banks
Further stock losses may increase speculation the Federal Reserve willlower its benchmark interest rate by as much as 75 basis points at itsmeeting March 20, said Juckes at RBS Financial Markets. The Fed cut its target for the benchmark overnight rate by a fullpercentage point in January, to 5.5 percent. Rate decreases may erodeinterest in the dollar by shrinking returns on deposits in the currency,relative to those in Europe. Still, earlier the euro reached a two-week low against the dollar amidconcern the European Central Bank will refrain from cutting interest ratestomorrow and in coming months even as economic growth slows. ``There's a risk that they'll keep rates too high for too long for the wrongreasons and by the time they do decide to cut rates it'll be too late'' tobolster growth,'' said Deborah Read, an economist at Bank of America.She sees the euro closer to 90 cents than 95 in ``the near-term.'' None of the 26 economists polled by Bloomberg News see the ECBmoving its benchmark rate from the current 4.75 percent when itannounces its decision tomorrow. ``The market is fearing that the ECB will wait too long before cuttingrates,'' and that is pushing the euro lower, said Kamal Sharma, acurrency strategist at Commerzbank AG. ``People see the ECB asbeing more reactive than pro-active.'' Traders are expecting at least a 25 basis-point cut in euro zone interestrates by June, judging by interest-rate futures contracts. The spreadbetween the three-month Euribor rate and the June contract is 31 basispoints. That spread is down from as much as 51 in January. Reports yesterday showed prices in France and Germany rose and ECBcouncil member and Bundesbank President Ernst Welteke told aGerman magazine the ECB should wait before cutting rates becauseinflation still isn't under control. ``We could see new lows in the euro,'' said Savvas Ladonikolas, vicepresident in foreign exchange at ING Barings. ``If the euro is at about 92now when the U.S. economy is falling off a cliff, can you imagine whatwould happen if U.S. growth recovered in the second half?'' The yen was little changed at 119.76 from 119.93 against the dollar amidconcern tumbling Japanese stocks will harm local banks by wideningunrealized losses on their stock holdings. ``Concerns are very strong that falling stocks will cause Japanesebanks' performance to deteriorate,'' said Hiroaki Yamano, deputymanager for foreign exchange at Nomura Securities Co. The Nikkei 225 stock average has declined 8 percent so far this month,closing yesterday at a 16-year low. The average failed to hold on to a 1.6percent rebound early today, closing up 0.2 percent at 11,843.59.
Japanese Stocks Drop
Japanese bank stocks fell today to their lowest level since Oct. 19,1998, when investors worried major banks might collapse under badloans. Banks are burdened with an estimated 33 trillion ($275 billion) of badloans, according to the Financial Services Agency. Standard & Poor'sCorp., which in February stripped Japan of the ``AAA'' rating it had heldfor 26 years, said bad loans may be as much as twice that, or equal to12 percent of gross domestic product. The yen earlier received a boost after comments from Japan's FinanceMinister Kiichi Miyazawa. ``We won't adopt the policy of using foreign exchange rates to stemdeflation,'' Miyazawa said at a parliament committee.