The dollar's value skidded Monday as concerns about record oil prices, the health of the U.S. economy and the tight presidential race dimmed the appeal of the buck compared with other major currencies.
Analysts also pointed to recent comments by some U.S. and foreign economic policymakers suggesting that a weaker dollar might do more good than harm. Those comments have encouraged speculators to sell the currency, experts said.
On Wall Street, stock and bond markets mostly shook off the greenback's latest woes, despite the implication that a falling currency could mean that some foreign investors are souring on American assets.
Gold, however, rose to its highest level since 1988, benefiting as an alternative to the U.S. currency.
The dollar dropped to a 12-year low against the Canadian dollar, an eight-year low against the Swiss franc and nearly matched its worst level against the euro since that currency was introduced in January 1999.
One euro cost $1.28 late Monday in New York, up from $1.265 on Friday and just below the record $1.284 reached in February.
The dollar's latest slide began about two weeks ago and has accelerated in recent days. The surge in oil prices above $50 a barrel has raised new fears that the U.S. economy might slow, making some traders and investors less confident about holding dollars, analysts said.
The possibility that the nation might face a repeat of the 2000 presidential election -- requiring recounts in one or more states to determine the winner -- also has rattled the currency market, said Lara Rhame, currency strategist at Credit Suisse First Boston in New York.
A weaker dollar usually is welcomed by American manufacturers because it can make their products cheaper for foreign buyers. The flip side is that other countries' exports can become more expensive for U.S. consumers as the dollar's purchasing power wanes. It also makes traveling abroad more expensive for Americans.
The dollar's level and direction have become more important since 2000 for another reason: Soaring trade and budget deficits have made the United States extraordinarily dependent on foreign capital to keep the economy going. A falling dollar devalues foreigners' holdings of U.S. assets -- such as Treasury bonds -- raising the risk that they might dump those assets rather than incur more losses on paper.
Wall Street generally has been unconcerned about the combined trade and budget deficit, taking the view that "it only matters if we can't finance it," said Rebecca Patterson, currency strategist at J.P. Morgan Chase & Co. in New York.
There was no sign of turmoil in the Treasury bond market on Monday. Interest rates were little changed, indicating that there was no rush for the exits, analysts said. The benchmark 10-year T-note yield ended at 3.97%, the same as Friday.
The stock market finished mixed. More stocks rose than fell, but the Dow Jones industrial average slipped 7.82 points, or 0.1%, to 9,749.99, a new low for 2004. Broader indexes also were down, although they haven't fallen as sharply as the blue-chip Dow in recent weeks, and most are well above their lows for the year.
Many analysts say the dollar's trend, for the moment, is at the mercy of short-term traders and speculators. Longer term, the question is whether U.S. and foreign policymakers would allow the dollar's value to continue to slide.
Recent comments from some Federal Reserve officials have hinted that the central bank might favor a much lower dollar to boost exports and restrain imports, thereby lessening the nation's trade deficit and its risky dependence on foreign capital.
Meanwhile, European policymakers have surprised Wall Street by failing to raise alarms about the dollar's weakness and the potential harm to Europe's exports.
Last week, European finance ministers said after a meeting in Luxembourg that a stronger euro was good for the Continent in one way: It muted the effects of higher oil prices. That's because oil is priced in dollars worldwide.
Japan, however, has always been more aggressive about protecting its exports by keeping the dollar from falling too far versus the yen.
On Monday, Japan's vice finance minister for international affairs, Hiroshi Watanabe, said Japan would intervene in foreign exchange markets -- buying dollars and selling yen -- if the dollar were to fall "too quickly."
Typically, "What makes policymakers nervous is the speed of a move" rather than the direction, CSFB's Rhame said.
Officially, the Bush administration favors a strong dollar. Treasury Secretary John W. Snow repeated that stance last week. But many analysts believe policymakers in the United States and abroad will allow a weaker dollar longer term, given the size of the U.S. trade deficit.
Among Monday's market highlights:
* The Standard & Poor's 500 index eased 0.94 point, or 0.1%, to 1,094.80. The Nasdaq composite was off 1.10 points, or less than 0.1%, to 1,914.04.
* Crude oil prices pulled back after reaching record highs early in the day. Near-term crude futures in New York lost 63 cents to $54.54 a barrel. Norway's government intervened to end a labor conflict that had put North Sea production in jeopardy.
* Gold gained as the dollar fell. Near-term gold futures in New York rose $4.40 to $429 an ounce, the highest since 1988.
* European stock markets were broadly lower on export worries. The German market fell 2.1%; French shares lost 2.1%.
* Google continued to hit new highs in the wake of its quarterly earnings report last week. The Internet search giant's shares rose $14.97 to a record $187.40.
* Utility company TXU rocketed $8.44 to $61.25 after boosting its earnings forecast and raising its dividend 350%.