Reply #7: Stocks, Dollar Pummeled After G7 Call

[ozymandius]

LONDON (Reuters) - A slide in the dollar after a weekend call from the Group of Seven industrialized countries for more flexible exchange rates pummeled U.S. Treasury bonds Monday and sent shares tumbling in Europe and Asia.

The dollar fell to its lowest against the yen in nearly three years and its weakest against the euro in eight weeks.

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"The implication is that Asian banks will now dump Treasuries and so Bunds and Japanese debt will be popular," said Marc Ostwald, a bond broker at Monument Securities in London. "It's also bad news for the exporter-rich Nikkei index."

Asian central banks have been buying dollars mainly via U.S. Treasuries to cap the strength of their currencies. Any possibility that this might not continue would be negative for Treasuries. However, the U.S. needs to attract about $1.5 billion a day from foreign investors to finance its budget deficit.

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