The dollar fell to an eight-month low against the yen on Friday while European and Asian shares slipped on worries U.S. growth data due later in the day may show the world's biggest economy is losing steam.
The retreat in stocks fed a rally in lower risk euro zone and U.S. government bond prices, with comments from a Federal Reserve official adding to fears about the economy.
The second quarter GDP data, due at 8:30 a.m. ET, will be particularly closely watched after a stream of economic data in the past month flagged a slowdown in the U.S. economy's recovery from the worst downturn since the 1930s.
The dollar fell to 86.17 yen on trading platform EBS, its lowest level since November 2009. Stop-loss trades below the previous low of 86.25 yen were triggered before support emerged from bids in the 86.20 yen area.
U.S. economic data is underperforming and keeping pressure on the dollar, said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.
Concerns about the U.S. economy and Fed easing will also put U.S. yields, which are a key driver for dollar/yen, on the downside, he said.
Benchmark U.S. 10-year Treasury note yields, which move inversely to prices, were 1.4 basis points lower at 2.972 percent by 3:55 a.m. ET. The yields hit a 15-month low of 2.855 percent earlier this month on persistent fears the economy was tipping back into recession.
JAPAN STYLE QUAGMIRE?
St. Louis Federal Reserve Bank President James Bullard, said on Thursday he was worried about the risks the United States might fall into a Japan-style quagmire of falling prices and investment, helping push major U.S. share indexes marginally lower.
Word stocks as measured by MSCI <.MIWD00000PUS> were 0.3 percent down as European shares slipped for a third consecutive session.
The pan-European FTSEurofirst 300 index shed 0.4 percent but was still on track to record its best monthly gain since March, helped by upbeat corporate earnings.
What I see in this market is a fight between macro-economic data and better-than-expected company results, said Koen De Leus, economist at KBC Securities.
We are at a point where the technical picture has improved considerably, but the problem is that the S&P 500 index doesn't want to break through the 200-day moving average. It's a worrying sign and if it stays like this for too long, then we can expect to go down again.
Japan's Nikkei <.N225> closed down 1.6 percent as signs that the U.S. recovery was faltering outweighed upbeat domestic earnings.
Sluggish jobs growth, marked by a 9.5 percent unemployment rate, is the biggest obstacle to the U.S. economy's recovery from the most brutal recession since the 1930s.
U.S. equities have been supported by earnings this month, according to MF Global, with 74.5 percent of S&P 500 components that have reported earnings in the United States beating estimates and only 15 percent posting a negative surprise.
Going forward, those positive surprises to second-quarter earnings need to transform into third-quarter jobs, said Geoff Howie, sales and markets strategist at MF Global Markets in Singapore.
U.S. crude prices retreated, heading for a fourth consecutive weekly settlement within the $75-$80 range, with investor focus on a slowing economy and rising U.S. inventories.
(Additional reporting by Tamawa Desai, Atul Prakash and Vikram S. Subhedar in Hong Kong; Editing by Ruth Pitchford)