(Updates prices; adds comment; changes byline and dateline,
previously LONDON)
* Oil drop, weak credit markets weigh on dollar
* Safe havens yen boosted on subdued risk appetite
* Fed policy meeting eyed
* Yuan weakens further after China launches trade-weighted
index
By Gertrude Chavez-Dreyfuss
NEW YORK, Dec 14 (Reuters) - The dollar edged lower against
major currencies on Monday on worries that heightened market
volatility caused by an oil price slump and turmoil in credit
markets could limit the number of U.S. interest rate hikes and
dampen the greenback's allure.
The dollar index has been down 2.5 percent so far this
month, much of it due to profit-taking as investors have fully
priced in the first U.S. interest rate increase in nine years.
The Federal Reserve is expected to deliver that policy move
on Wednesday, with investors now focused on the pace of
tightening after that.
However, the continued decline in oil prices due to a
prolonged supply glut and more recent turbulence in the U.S.
high-yield market with the closure of three credit funds have
raised the possibility that the Fed would be even more cautious.
"Any prolonged period of market volatility, weaker
commodities, or worries about emerging markets could limit the
outlook for rate hikes next year and undermine the appeal of the
dollar," said Omer Esiner, chief market analyst at Commonwealth
Foreign Exchange in Washington.
Market anxiety has therefore boosted the stock of
traditional safe havens such as the yen and Swiss franc, while
the oil drop has hammered the commodity-linked Canadian dollar,
which dropped to an 11-1/2 year trough against its U.S.
counterpart.
In mid-morning trading, the dollar fell 0.2 percent against
the yen at 120.76 yen JPY= and was down 0.2 percent against
the Swiss franc at 0.9807 franc CHF= .
The euro, on the other hand, rose 0.4 percent to $1.1028
EUR= .
The euro also benefited from reduced appetite for risk.
Investors who had held carry positions in which they borrow
euros in order to sell them and buy a higher-yielding currency
bought them back.
The Australian dollar rose 0.9 percent to US$0.7248, and the
New Zealand dollar gained 0.8 percent to US$0.6756 NZD= .
Against the Canadian dollar, the greenback was up 0.1
percent at C$1.3742 after hitting C$1.3677 CAD=D3 , its highest
since June 2004.
Earlier, China's yuan hit a 4-1/2-year low against the U.S.
dollar in onshore trading CNY=CFXS after the country's central
bank again lowered the yuan midpoint rate CNY=SAEC . That
followed Friday's announcement of a new trade-weighted index,
which some viewed as a green light for further yuan devaluation.