Dollar falls on news from S. Korea

BERLIN -- The dollar dropped sharply yesterday against other major currencies after a report that said South Korea plans to diversify its foreign exchange reserves unnerved markets.

The 12-nation euro bought $1.3257 in late New York trading, up from about $1.3067 late Friday. US financial markets were closed Monday for Presidents' Day.

The dollar slid against the Japanese yen, trading at 104.09 yen, down from 105.64 Friday.

The British pound rose to $1.9117 from $1.8947, while the dollar bought 1.1585 Swiss francs, down from 1.1829, and 1.2250 Canadian dollars, down from 1.2316.

Weighing on the dollar was a recent report by South Korea's national bank that it plans to diversify its foreign exchange reserves, currently worth about $200 billion, away from dollars and to include more currencies, analysts said.

''Markets have been worried for a long time about this diversification of reserves by Asian central banks," said Lee Ferridge, currency strategist at Rabobank in London.

European markets also were reacting to the dollar's retreat against the yen in Asia after news that communist North Korea had showed a conditional willingness to return to the six-party talks, a forum to resolve the ongoing crisis over the country's nuclear programs.

With financial markets still worried about the US budget and trade deficits, despite recent upbeat data on the US economy, President Bush's visit to Europe appeared to be having little impact on the markets.

''We're in a phase of dollar weakening again," said Commerzbank currency analyst Carsten Fritsch.

''Those deficit problems are not really solved, and no near-term solution appears in sight."

''In the market's current mood, I can't imagine that Bush can rally a change of opinion" about the dollar, he said.