The dollar cut gains against the yen on Wednesday, while the Japanese currency hit an 13-month high versus the euro after embattled Wall Street investment bank Lehman Brothers reported its third quarter results.
Lehman, whose share price plunged 45 percent on Tuesday on growing concerns about its capital situation, reported a loss of $5.92 per share, slashed dividends and said it is actively in talks to sell assets.
The U.S. currency also trimmed gains against a basket of currencies, weighed by an early rebound in oil prices from a five-month low after the world's major oil producers agreed to a small but unexpected production cut.
"The dollar has come under initial pressure," said Ian Stannard, senior foreign exchange strategist at BNP Paribas. "The market may have been hoping for more news regarding capital raising ... this doesn't seem to be the case, so concerns about the banking system remain in place."
The Korean Development Bank said earlier in the day it had ended talks over possible investment in Lehman, with the bank's ongoing woes highlighting nagging problems in the financial sector and prompting a wave of risk aversion.
Abating risk appetite prompted the Japanese unit to score a 13-month high against the euro at 150.15 yen as market participants said low-risk currencies like the yen would stay in favour as the market endures the latest in the financial sector storm.
By 1218 GMT, the dollar stood at 106.77 yen, flat on the day compared with 107.47 yen prior to the results. It traded 0.2 percent higher against a basket of major currencies .
The euro fell nearly 0.4 percent to $1.4082, dragged down by its losses against the yen, while increasing worries about a growth slowdown in the euro zone kept the single currency near an 11-month low of $1.4045 hit on Tuesday.
Traders showed limited initial reaction to European Central Bank President Jean-Claude Trichet, who on Wednesday told the European Parliament it would be naive to think markets will return to their pre-turbulence state
Initial news the KDB was seeking a controlling stake in Lehman had knocked the Japanese currency down and boosted the Australian and New Zealand dollar up more than 1 percent each.
But the announcement the talks had ended in disagreement enabled the yen to trim those losses, as the news suggested an immediate solution to Lehman's problems seems unlikely.
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