Weak dollar persists, stocks mixed on credit stress

Gold and crude oil were slightly off their record highs. European shares were flat to slightly higher and Japanese shares lost more than 1.5 percent. "Market sentiment has been thoroughly chilled, so now it's really sensitive to any negative factors," said Katsuhiko Kodama, a senior strategist at Toyo Securities. "Selling is inviting more selling."

The dollar was near all-time lows against the euro and 12-year lows against the Japanese yen , hit earlier in Asian trading. The euro was down 0.4 percent at $1.5574 after touching a new record high of $1.5651. The dollar was flat at 100.51 yen. Earlier, it fell below 100 yen for the second day in a row. It was weak down against a basket of six major currencies <.DXY>.

Investors have been dumping the dollar on doubts about the Federal Reserve's ability to stem a broadening crisis in the massive U.S. mortgage bond market, which is tightening credit conditions and offsetting its efforts to help the economy by slashing rates. "The dollar is still very much in a downtrend and it's hard to see a catalyst for the reversal of that," said Jeremy Stretch, strategist at Rabobank. ,

There is also growing fears about hedge fund failures with Carlyle Capital Corp saying this week it expects its lenders to seize its remaining assets after failing to reach a deal with creditors. Drake Management also told investors it was considering liquidating all three of its hedge funds with $5 billion of assets. Ratings agency Standard & Poor's did ease some concerns on Thursday when it said write-downs for large financial institutions are likely past the halfway mark.

WEAK STOCKS
The S&P report helped Wall Street to modest gains overnight, but this failed to carry over into the rest of the world on Friday. European shares slipped in early trade as weakness in financials and retail stocks offset gains in miners. The pan-European FTSEurofirst 300 index <.FTEU3> was up 0.3 percent, held back by retailers, which fell after a bearish note from Goldman Sachs.

Earlier, Japan's benchmark Nikkei <.N225> average closed at a more than 2-1/2 year low. It closed down 1.54 percent at 12,241.60. The broader TOPIX <.TOPX> closed down by 1.9 percent at 1,193.23. Oil and gold prices were close to their record highs. Demand for both is being driven in par by the weaker dollar.

U.S. crude for April delivery fell 43 cents to $109.90 a barrel. The contract touched a record for the seventh time in a row in the previous session at $111 a barrel. "It's a bit of profit taking, but it should be quite limited especially since we're coming to the weekend," said Gerard Rigby, an analyst at Sydney-based Fuel First Consulting. 

Spot gold was at $997 holding within sight of the $1,000-an-ounce barrier broken on the U.S. futures market on Thursday.