Array

TOKYO, July 11 (Reuters) The dollar tumbled to a record low against the euro and stayed near a 26-year low against sterling on Wednesday as investors feared that growing problems in the U.S. subprime mortgage market could spread to the wider economy.

The dollar's broad decline accelerated early in the Asian session and was steepest against the low-yielding yen, as investors cut back on their exposure to higher-yielding but riskier assets.

The sell-off was sparked by a report from credit rating agency Standard&Poor's that it might downgrade $12.1 billion in subprime-related debt. Subprime loans are extended to borrowers with poor credit.

''The latest sharp drop of the dollar against the yen looks as if it was caused by Japanese margin traders cutting their yen short positions,'' a senior dealer at a Japanese securities company said.

''The dollar remains vulnerable, but it may not fall one-way against the yen in Tokyo if those traders come back to pick it up on dips,'' the dealer said.

The euro rose as high as a record $1.3787 against the dollar in early trade in Asia on electronic trading platform EBS.

Sterling stabilised at $2.0252 against the dollar, near its highest in 26 years, according to Reuters data.

Against the yen, the dollar fell to a one-month low of 120.99 on EBS before pulling back to 121.60 yen, down 0.08 percent from late New York trade.

Market players will look closely to equity markets in the region whether they follow a fall in the U.S. stocks to prompt investors to further trim their risky positions.

The subprime news pushed U.S. stocks and Treasury yields sharply lower.

REUTERS PDS VP0745