Dollar turns lower on banking intervention concern

The dollar sagged in volatile late trading Friday amid a huge sell-off in U.S. bank stocks and talk about further drastic actions the government may take in the financial sector.

The 16-nation euro swung in a big range Friday, trading at $1.2841 late in New York, up from $1.2684 late Thursday. Earlier in the day, the euro fell as low as $1.2555 on continuing fears that financial chaos in Eastern Europe would hurt the broader region.

Meanwhile, the British pound rose to $1.4442 from $1.4302, while the dollar fell to 93.10 Japanese yen from 94.40 yen late Thursday.

Rumors swirled about the possible nationalization of Citigroup Inc. and Bank of America Corp., sending their shares plunging more than 20 percent in the early afternoon until White House press secretary Robert Gibbs reinforced that a "privately held banking system is the correct way to go."

Gibbs would not say directly, however, that President Barack Obama would never nationalize banks.

"There's a sudden increase of unknowns," said David Solin of Foreign Exchange Analytics in Essex, Connecticut, with investors abroad concerned about possible actions by the U.S. government in the banking sector this weekend.

Gold benefited from the uncertainty, soaring past $1,000 an ounce as investors sought safety in the precious metal.

Also helping the euro were media reports that Germany was working on possible rescue options for weaker members of the 16-member euro zone, said Ron Leven, currency strategist for Morgan Stanley in New York. German officials, however, have denied this.

And in Europe, European Central Bank President Jean-Claude Trichet told reporters at the European American Press Club in Paris that there are no countries that are a "weak link" in the euro zone.

"I consider that it is extremely important that each government is fully responsible for its own policies, and of course for its own fiscal policies particularly," Trichet said.

Marco Annunziata, chief economist at UniCredit, said that "Central and Eastern Europe has come under heavy fire from investors and commentators, triggering a sharp depreciation of currencies and a flurry of analyses and articles arguing that the region is doomed, set to collapse bringing Western Europe with it _ largely via the euro-zone's banking system."

In Mexico, meanwhile, the dollar hit a record 14.9822 Mexican pesos before closing at 14.7605 Friday from 14.6825 late Thursday.

The Mexican central bank cut interest rates by a quarter percentage point to 7.5 percent, the second cut this year. The bank auctioned off $121 million in foreign reserves to help support the peso. The country has sold off more than $15 billion in reserves to help prop up its currency, but the peso has lost more than 26 percent of its value in the past year.

In other late trading Friday, the dollar slid to 1.1548 Swiss francs from 1.1733 francs late Thursday, and dropped to 1.2484 Canadian dollars from 1.2555.

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Associated Press Writers Emma Vandore, Patrick McGroarty, Ben Feller and E. Eduardo Castillo contributed to this report.