FOREX-Dollar down as credit market concern rises

(Updates prices, adds comment, byline)

By Steven C. Johnson

NEW YORK, May 9 (Reuters) - The dollar fell on Friday as another round of credit market losses prompted investors to reduce exposure to risky assets and heightened concern about the health of the U.S. economy.

The U.S. currency fell sharply against the yen after American International Group (AIG.N: Quote, Profile, Research), the world's biggest insurer, posted its largest ever quarterly loss and said it planned to raise $12.5 billion in fresh capital.

That rekindled concern about the U.S. economy, particularly with crude oil CLc1 again rising to a record high, and sent the dollar 0.8 percent lower to 102.94 yen <JPY=>.

On the week, the greenback was down by more than 2 percent against the Japanese currency, its worst weekly performance in nearly two months.

AIG's surprising large losses dimmed a growing sense of financial market optimism. On Thursday, U.S. Treasury Secretary Henry Paulson said he believed the credit crisis was "closer to the end than the beginning."

"The mood swings in the market continue to amaze me," said Jay Meisler, principal of Global-view.com, an online forum for traders and investors. He said the flow out of high-yield currencies and into low-yielding ones on Friday "signals a fresh bout of risk aversion."

The euro also fell 0.2 percent to 159.40 yen <EURJPY=>. Against the dollar, it rose 0.5 percent to $1.5480 <EUR=> after hitting a two-month trough below $1.53 a day ago.  Continued...