Dollar steady after hitting lows

Investors jitters have weighed on the dollar's performance

The US dollar held near record lows against the euro, as data showed the US economy was feeling the strain from the housing slump and credit squeeze.

The dollar was steady at $1.3877 against the euro in Asian trade, after dropping as low as $1.3927 on Thursday.

US retail sales grew by less than expected in August - a sign that the credit crunch is affecting consumers.

The dollar has weakened this week amid beliefs the US Federal Reserve will cut interest rates to reassure the market.

Economic worries

The slowdown in spending, and a drop in industrial production shown by separate data, are being taken by many analysts as further signs of a slowdown in the US economy - particularly after a surprise slump in US jobs figures last week.

Analysts feared the loss of 4,000 jobs in August meant that the recent market turmoil had spread to the wider US economy.

Concern over financial markets, as well as the easing threat of a hurricane, saw oil come back from record highs on Friday.

Meanwhile, investors are expected to remain on tenterhooks early next week as they await a decision from the US Federal Reserve on interest rates.

Expectations are mounting that the Fed could trim rates by as much as 50 basis points to 4.75%, in an effort to stabilise financial markets and ease consumer worries.

At the heart of the dollar's decline have been problems in the US housing market, caused by the Fed increasing interest rates in order to slow accelerating inflation.

The increases have led to higher borrowing costs, triggering an increase in the number of people defaulting on loans, especially in the sub-prime mortgage market.

The sub-prime sector specialises in lending to people with poor or non-existent credit histories.

This, in turn, has spread to global credit markets, as many of the sub-prime mortgages were repackaged and sold on to European and UK banks as investment assets.