The dollar tumbled Friday, hitting two-year lows versus the Swiss franc , as fears about losses in the credit sector intensified after Bear Stearns said fixed-income markets were the worst in more than two decades.
U.S. stocks extended declines after Bear Stearns' Chief Financial Officer Sam Molinaro said on Friday the credit market turmoil and risk aversion may be a worse predicament than the 1980s stock market fall and 1990s Internet bubble burst.
The dollar started to fall earlier in the session after reports showed the slowest rate of U.S. job growth since February and deterioration in a U.S. service sector index.
"It's a 'sell U.S. day' today," said Brian Dolan, director of currency research at Forex.com in Bedminster, New Jersey.
In late afternoon trading, the dollar fell as low as 1.1868 Swiss francs, its lowest since May 2005, according to Reuters data. It retraced slightly to 1.1890 Swiss francs, still down 1.3 percent on the day, its biggest daily decline since at least November 2006.
Against the yen , the dollar was 0.9 percent lower at 118.05.
"The fixed income market environment we've seen in the last eight weeks has been pretty extreme," Bear Stearns' Molinaro said on a conference call with analysts.
Standard & Poor's on Friday changed its rating outlook on Bear Stearns to negative from stable. Two Bear Stearns-managed hedge funds collapsed last month on bad bets on subprime mortgage investments.
"The dollar's sell-off can be attributed to a combination of factors: weaker U.S. data and renewed concerns about the credit markets. The underlying theme is that there is a lot more concern about the subprime issue," said Forex.com's Dolan.
The euro was 0.6 percent higher at $1.3782 as U.S. stocks closed the session sharply lower, with the three benchmark indexes sliding more than 2 percent.
Reflecting the mounting subprime worries, the cost to insure the debt of widely held stock Countrywide Financial surged on Friday. The company's credit default swap spreads widened by almost 100 basis points from Thursday's close.
"Market players are focusing on evolving developments in the U.S. subprime crisis, with equities the preferred barometer for market risk aversion," said Michael Woolfolk, a senior currency strategist at The Bank of New York, in New York.
Early in the session, data showing weaker-than-expected growth in U.S. payrolls in July boosted the chances of a Federal Reserve interest rate cut this year as reflected in interest rate futures markets.
The Labor Department said 92,000 jobs were created in July, below a revised 126,000 new jobs in June. Wall Street economists had been looking for an increase of 130,000.
"If (jobs) stay at that level over the next few months the chances of a rate cut will increase exponentially," said Boris Schlossberg, senior currency strategist at DailyFX.com in New York.