Dollar heads lower after brief rally

The European single currency rose to 1.4413 dollars from 1.4323 in New York late on Wednesday.

Against the Japanese currency, the dollar dipped to 104.51 yen from 104.56 yen.

Gold rose sharply, closing in on 900 dollars an ounce, as investors sought a financial haven.

"Once again, the respite for markets from a bailout has been short-lived, with risk aversion returning alongside renewed concerns over the health of the financial system," said Daragh Maher, deputy head of global foreign exchange strategy at Calyon.

The dollar had rallied in early trading on Thursday after the US Federal Reserve announced a 180-billion-dollar cash line to fight the global financial crisis as part of a joint campaign with other leading central banks.

The boost in liquidity was also supported by the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan and the Swiss National Bank.

Barclays Capital analyst Julian Callow described the coordinated central bank action as "unprecedented."

"In a new unprecedented move, the Federal Reserve, ECB, BoE, Bank of Canada, BoJ and SNB announced new and extended FX (foreign exchange) swap arrangements to provide overnight dollar liquidity," Callow said.

Japan’s central bank chief Masaaki Shirakawa said the six central banks had made the joint move because they believed "taking swift measures was necessary."

He added: "The tension in international financial markets has been rapidly increasing and spreading to unexpected areas."

Economic storm clouds continued to threaten markets after a tumultuous week that saw the collapse of U.S. investment bank Lehman Brothers, the sale of Merrill Lynch and the rescue of insurer AIG.

On Thursday, British bank Lloyds TSB agreed a takeover deal for rival HBOS -- which has become the latest global victim of the credit crunch.

In the United States meanwhile, Morgan Stanley -- one of the last two major Wall Street banks still standing -- was reported to be in emergency merger talks.

In early London trading on Thursday, the euro changed hands at 1.4413 dollars against 1.4323 late Wednesday, at 151.21 yen (149.78), 0.7942 pounds (0.7879) and 1.5842 Swiss francs (1.5798).
The dollar stood at 104.51 yen (104.56) and 1.0951 Swiss francs (1.1027).

The pound was at 1.8218 dollars (1.8176).

On the London Bullion Market, the price of gold jumped to 877.50 dollars per ounce from 813 dollars late on Wednesday.