Dollar at two-year low against yen

Currencies took centre stage on Asian markets Friday morning as the dollar fell below Y108 for the first time since the middle of 2005 as speculation grew that the US Federal Reserve would have to cut interest rates further as credit-market losses increase.

The dollar dropped as low as Y107.67, a fall of 0.3 per cent. It also hit a record low against the euro in Asian trading of $1.4967.

The Australian dollar looked set for its third weekly loss and the New Zealand dollar for its fourth successive losing week as risk-averse carry-trade investors liquidated their high-yielding positions to buy yen and dollars. Crude oil pulled further back from its highs earlier in the week, trading around $97 a barrel, on bigger shipments and less demand in the US.

Share markets were mixed, with the biggest, Tokyo, closed for a holiday. Seoul slid 2.5 per cent and Tawian dropped 1.3 per cent. Mainland Chinese markets fell by nearly one per cent.

But in Hong Kong, shares bounced back from two-month lows as the territory's chief executive, Donald Tsang, urged Beijing to allow more mainland companies to list on the city's stock market. Between 15 and 20 Chinese companies, mainly insurers and media firms, are expected to float in the next two years.

The Hang Seng Index ended the morning 1.2 per cent higher at 26,305.45. It was also helped by property tycoon Lee Shau-kee's announcement that he had invested more than HK$1bn on the stock market.

The Hong Kong market has been volatile in recent months, rising by 45 per cent from the depth of the subprime turmoil in August on news that Beijing would allow individual investors to buy shares in Hong Kong, but then falling back by 18 per cent when Beijing seemed to have changed its mind. The latest word from the Hong Kong government was that it expected the scheme to go ahead.

South Korean shares were the biggest losers in Asia, falling for the seventh day running. The Kospi dropped as much as 2.9 per cent but by early afternoon losses had been trimmed to 2.5 per cent, with the index at 1,754. The market fell on gloom about global economic prospects, falling shares in China and fears that regulators might investigate Mirae Asset Securities, one of the country's most successful investment companies. Mirae shares tumbled 14 per cent to Won138,500.