The dollar pulled back from a three-month low against the yen but remained pressured against other currencies on Thursday as growing fears of potential losses at financial firms from credit market turmoil hurt sentiment.
The dollar stayed near a record low against the euro as investors awaited rate decisions later in the session by the European Central Bank and the Bank of England, both of which are expected to keep interest rates steady.
The dollar remained pressured as stock futures pointed to a weak start on Wall Street after a plunge on Wednesday that kept intact expectations for another Federal Reserve rate cut next month and further eroded the greenback's yield appeal.
Traders said the yen could gain against the dollar and high-yielding currencies on further slides in US equities, which would prompt risk-averse investors to unwind carry trades in which they use the yen to buy higher-yielding currencies.
"What the currency market is watching is stocks," said Kosuke Hanao, head of forex sales at HSBC in Tokyo, adding that market players were bracing for openings of European and US stock markets and showed limited reaction to falls in Asian shares.
The dollar fell 0.1 percent to 112.70 yen reversing after a 1 yen rise from a three-month low of 112.00 yen on electronic trading platform EBS. Analysts said the dollar's brief recovery against the yen at midday was due to buying by Japanese importers and margin traders that may not last long.
Also on Wednesday, Morgan Stanley said it took a $3.7 billion loss from its subprime mortgage exposure while American International Group Inc said quarterly profit fell 13 percent partly due to its mortgage market exposure.
BNP Paribas, France's biggest listed bank, provided a sharp contrast to the slump in earnings of many of its rivals by reportincked to record lows overnight after General Motors Corp reported its biggest ever quarterly net loss of $39 billion on Wednesday.
Currencies of natural resource-rich countries such as Australia and Canada have been the biggest gainers from a rally in commodities that pushed gold to a 28-year high and US crude oil futures to a record high earlier this week.
But traders said these currencies may suffer sharply if stock markets slump and further reduce investors' risk appetite. The Australian dollar fell 0.6 percent to 104.10 yen while the New Zealand dollar fell more than 1 percent to 86.82 yen.
The euro was little changed at $1.4635 after surging to an all-time high of $1.4731 on EBS on Wednesday. The dollar index, which measures its value against a basket of six major currencies, was at 75.565, off its record low of 75.077 hit on Wednesday.
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