By Hideyuki Sano
TOKYO, Sept 13 - The dollar found solace in sparse trade on Thursday, holding steady as leading countries tried to restore confidence following the devastating aerial assaults in New York and Washington.
Tokyo dealers said volume was down to nearly a quarter of the normal level as they remained transfixed by images of heart-wrenching rescue work being done at the World Trade Center and the Pentagon where thousands are feared dead.
"I don't think there are many people out there who want to make money using terrorist attacks," said Takashi Toyahara, manager at Nomura Securities.
In mid-afternoon, the dollar was practically unchanged at 119.47/52 yen, compared with 119.49 yen in late New York and up a yen from a post-attack low of 118.50 yen.
The euro was also calm at 90.65/70 cents and 108.36/46 yen, compared with late New York levels around 90.62 cents and 108.43 yen.
"The market is reacting calmly, with trading very thin. It's surprising how the dollar's been holding up so well," a dealer at a Japanese bank said.
"Obviously, there are major worries about settlement risk, but very few are willing to ditch their morals and speculate at a time like this," he said.
The Bank of Japan (BOJ) said Japanese banks had no notable problems in settling dollar funds during New York trade, although traders reported there was obviously some trouble in settlement with banks that had been located at the World Trade Center. "There's no point buying the dollar when you cannot be sure if they are fully paid," said a dealer at a European bank.
RESTORING CONFIDENCE
Meanwhile, central banks around the world moved to calm the markets.
The U.S. Federal Reserve on Wednesday pumped $38.25 billion in temporary reserves into the U.S. banking system, an amount analysts said was 10 times the daily average and akin to cutting short-term interest rates.
Central bankers of the Group of Seven (G7) world economic powers said they were ready to provide liquidity to ensure markets operate "in an ordinary fashion".
They also said they were ready to take further action as necessary, triggering speculation the G7 could coordinate joint intervention to support the dollar, should it dive again as did immediately after the attacks.
Many market players were holding back ahead of the reopening of the U.S. markets.
"To be honest, we can't really say what will happen until the New York Stock Exchange reopens, probably on Friday," said Masayuki Yamamoto, a research analyst at Bank of America.
DAMAGE TO U.S.
As operators struggled to assess the economic implications of the attack, analysts saw the dollar coming under pressure because of the likely damage to U.S. consumer confidence and business activity.
The prospect of U.S. retaliation for the attacks was clouding the picture.
While some analysts argued that the scent of war could prompt safe-haven buying of the dollar, others feared that an escalation in military activity could further undermine confidence in the U.S. economy.
Dealers said European currencies rather than the yen would probably benefit.
"The dollar will likely weaken against the European currencies, with repatriation out of U.S. markets," said Koji Fukaya, chief forex strategist at Bank of Tokyo-Mitsubishi.
SPECULATION ON RATES
Speculation was rife the world's major economies would unleash a coordinated round of monetary easing similar to one that occured when Wall Street crashed in 1987.
Those hopes were heightened after news Federal Reserve Chairman Alan Greenspan was returning to the United States from a regular meeting of central bankers in Switzerland.
A Japanese newspaper reported the BOJ was considering further monetary easing, with the issue to be discussed at its next Policy Board meeting from Tuesday.
But Bank of England Governor Sir Edward George said that coordinated interest rate cuts were "extremely unlikely". (additional reporting by Isabel Reynolds)