By Daniel Kruger and Kim-Mai Cutler
     Sept. 30 (Bloomberg) -- The euro fell the most against the
dollar since the introduction of the shared currency in 1999 as
France and Belgium led a state-backed rescue of Dexia SA, the
world's biggest lender to local governments.
     The 15-nation currency also weakened against the British
pound after Belgian Prime Minister Yves Leterme said Dexia will
receive about $9.2 billion to shore up its capital. The dollar
rose against the yen on speculation the U.S. Senate will salvage
a $700 billion bank-bailout plan as early as tomorrow after
Congress rejected it yesterday.
     ``The consensus is the U.S. banking system is a little bit
further along in its exposure of its toxic assets,'' said Firas
Askari, head currency trader at BMO Nesbitt Burns in Toronto.
``It's a case of which is relatively worse. The dollar's going
to benefit against the euro because Europe has more to expose.''
     The euro fell 2.5 percent to $1.4077 at 10:52 a.m. in New
York, from $1.4434 yesterday. The euro also slid to 149.85 yen
from 149.49. It earlier reached 148.84, the weakest since Sept.
17. The yen weakened to 106.12 per dollar from 104.18, after
earlier reaching 103.54, the most since Sept. 16.
     Dexia is being rescued after its shares had a record
decline yesterday. The capital infusion comes two days after
Belgium, the Netherlands and Luxembourg rescued Fortis, the
largest Belgian financial-services company, Britain took control
of Bradford & Bingley Plc, the country's biggest lender to
landlords, and Germany bailed out Hypo Real Estate Holding AG.
 
                      `Coming Out a Winner'
 
     European banks are being squeezed amid a surge in borrowing
costs as lenders hoard cash on concern more financial
institutions will fail. The euro interbank offered rate, or
Euribor, that banks charge each other for one-month loans
climbed to a record 5.05 percent today, the European Banking
Federation said.
     ``This isn't just about Wall Street, there's very bad news
in Europe that will need to be countered by new measures,'' said
Stephen Jen, the global head of currency research at Morgan
Stanley in London. ``What's notable is how well the dollar has
held up against the euro and pound despite the bailout's
rejection yesterday.''
     The U.S. Senate will try to revive a $700 billion
financial-rescue package after yesterday's defeat in the House
of Representatives. The bill would have allowed the government
to buy troubled assets from banks. Institutions posted $590
billion of losses and writedowns since the start of last year
following the collapse of the U.S. subprime-mortgage market.
 
                          Carry Trades
 
     Higher-yielding currencies recouped losses against the
Japanese yen as Europe's benchmark Dow Jones Stoxx 600 Index
gained 0.8 percent. The Australian dollar rose 1.2 percent to
84.84 yen after falling 4.9 percent yesterday. The New Zealand
dollar gained 2.2 percent to 71.55 yen after dropping 3.7
percent yesterday.
     ``I would be very cautious in betting on further near-term
dollar-yen losses,'' said Michael Klawitter, a currency
strategist at Dresdner Kleinwort in Frankfurt. ``Any positive
news on the political front would have quite an impact.''
     The yen typically declines when demand for high-yielding
currencies rises, as traders put on so-called carry trades. In
such transactions, investors get funds in countries with low
borrowing costs and buy assets where returns are higher. Japan's
0.5 percent target lending rate compares with 7 percent in
Australia and 7.5 percent in New Zealand.
 
                          The Rising Yen
 
     The yen rose the most of all 16 most-actively traded
currencies yesterday after the Standard & Poor's 500 Index
plunged the most since the 1987 crash.
     The Japanese currency is up 11.7 percent against the euro
this quarter. The dollar has fallen 0.8 percent against the yen,
paring a 7 percent gain in the previous three months. The euro
is down 9.8 percent against the dollar.
     Consumer confidence in the U.S. unexpectedly rose in
September in a survey taken before the recent worsening of the
credit crisis and plunge in stocks. The Conference Board's
confidence index increased to 59.8, a third consecutive
increase, from 58.5 the prior month, the New York-based group
said today.
     Another report showed business activity slowed less than
forecast this month. The National Association of Purchasing
Management-Chicago's index fell to 56.7 in September from 57.9
the prior month. Fifty is the dividing line between growth and
contraction.
     Implied volatility on one-month euro-dollar options rose to
16.4725 percent, or the highest in almost eight years. On Sept.
18, it reached 15.55 percent, the same level that triggered the
Group of Seven nations to buy euros in 2000 to halt the 27
percent slide from its 1999 debut.