The US dollar gained overnight, driven by safe haven buying on fears that the U.S. economy is getting deeper into a recession. The U.S. economy contracted 6.2 percent in the fourth quarter, the biggest decline since 1982 and worse than expected. Talk that the U.S. government will raise its stake in Citigroup spurred further dollar buying for safety.

The Japanese yen recouped some losses after a technical indicator showed its recent decline was excessive. However, the yen remains vulnerable to worries about Japan's weakening economy. Japan's economy contracted last quarter by the most since the 1974 oil crisis, while its trade deficit expanded in January the most in more than two decades. The yen has depreciated 8 percent against the US dollar in February. Some traders think that as global growth evaporates, the yen is no longer viewed as a safe haven.

The euro fell despite news of a 25 billion euro multilateral bailout deal for the central and eastern European countries. Investors are still concerned that rising defaults on foreign currency loans may spread to western European countries and this bailout plan may not be enough to revive the economy. The European Central Bank is expected to cut rates next week from the current 2 percent, but not below 1 percent.

The British pound benefited from a UK government bank insurance plan launch for toxic assets in attempt to spur lending. The news came after Royal Bank of Scotland reported a 24 billion pound loss. However, the sterling has fallen since then as UK consumer confidence remained the weakest in 30 years. Weak UK data suggests further UK monetary easing in March.

The Canadian dollar was hindered by a stronger US dollar amid safe haven buying and on expectation of dollar demand for the month-end fixing. Meanwhile, Bank of Canada is expected to cut rates by another 50 basis points to 0.50 percent on March 3.

The Australian dollar is trading steady ahead of next week's central bank meeting on monetary policy. The market is uncertain if there will be a rate cut after Australian capital spending jumped 6 percent in the last quarter, reducing the chance of a rate cut on March 3. However, a rate cut is still expected in New Zealand on March 12. The New Zealand dollar dipped, hurt by a slide in business confidence data in New Zealand.

The Mexican peso fell to a record low for the second straight day as the U.S. economy shrinks. U.S. buys at least 80 percent of Mexico's exports. Mexico's economy will be hurt if exports to the U.S. continue to evaporate.

Indicative rates:

EUR/USD 1.2644

USD/JPY 97.97

GBP/USD 1.4243

USD/CAD 1.2660

USD/MXN 15.0768

USD/CHF 1.1709

AUD/USD 0.6398

NZD/USD 0.5029

USD/DKK 5.8939

USD/SEK 9.0074

USD/NOK 7.0440

USD/TWD 34.916

USD/CNY 6.8398

10-Year Treasury Note Yield: 3.0372%

Dow Jones Industrial Average: 7,131.27 -51.05