March 17 (Bloomberg) -- The dollar fell below 96 yen for the first time in 12 years earlier today after the Federal Reserve's emergency weekend cut in its discount interest rate and the sale of Bear Stearns Cos. to JPMorgan Chase & Co.

The dollar dropped to a record low against the euro and the Swiss franc as the Fed made its first weekend change in borrowing costs since 1979 and Bear Stearns was acquired for less than a 10th of its March 14 value. Traders are betting the Fed will slash its benchmark rate by at least 1 percentage point tomorrow to stem a slump in confidence in financial markets, interest-rate futures show.

``I find it outrageous that the Fed is just throwing the dollar out of the window,'' Jim Rogers, chairman of Rogers Holdings, co-founder of the Quantum Hedge Fund with George Soros, said in a Bloomberg Television interview. ``They are signaling to the whole world that they have given up on the dollar. Most of my U.S. dollar assets are gone.''

The dollar fell as low as 95.76 yen, the weakest since Aug. 15, 1995, before trading at 97.39 yen at 4 p.m. in New York, from 99.09 yen on March 14. Against the euro, the dollar dropped to $1.5903, the weakest since the euro started trading in 1999, and was at $1.5749 from $1.5674. It slid to a record 0.9638 Swiss francs.

Treasury Secretary Henry Paulson reiterated today that the U.S. has a strong dollar policy. Speaking at the White House, he said he wouldn't speculate on ``hypotheticals'' about whether he would support government intervention in currencies.

Pound Record

The Australian and New Zealand dollars fell on speculation investors will spurn higher-yielding currencies as financial turmoil deepens. Australia's currency declined to 91.82 U.S. cents from 93.74 cents. The New Zealand dollar weakened to 79.86 U.S. cents from 81.34 cents.

The British pound dropped the most in six years against the euro as concern that credit losses will widen reduced demand for higher-yielding currencies. It touched 79.12 pence, the lowest level since the euro's 1999 inception, and was last at 78.71, from 77.58 pence on March 14. It fell to $2.0001 from $2.0202.

The Standard & Poor's 500 index fell 0.9 percent, after earlier losing as much as 2.4 percent. The dollar recovered some ground as stocks pared losses and as the Fed left its benchmark rate unchanged, after traders speculated earlier that the central bank would conduct an emergency rate cut today before tomorrow's meeting.

Volatility implied by one-month dollar-yen options earlier reached 24 percent, the highest since January 1999. Traders quote the gauge of expected swings in exchange rates when pricing options.

Buying Options

``People are buying options to protect against a further slide in the dollar,'' said Neil Jones, head of European hedge fund sales in London at Mizuho Capital Markets. ``The market is worried if there will be a potential domino effect after Bear Stearns.''

The dollar has set record lows against the euro every day since March 11, when the Fed said it will extend $200 billion of credit to financial institutions in exchange for debt including mortgage-backed securities.

Recent moves by the yen are ``excessive,'' Japan's Finance Minister Fukushiro Nukaga said. The government isn't considering any specific action at the moment, he said.

Goldman Sachs Group Inc. and Morgan Stanley strategists say coordinated action by policy makers to curb the dollar's slide is increasingly likely. In intervention, central banks buy and sell currencies to influence exchange rates.

Deficit Shrinks

Investors should sell dollars for yen because of stress in the financial system, Goldman Sachs analysts Thomas Stolper and Jens Nordvig, wrote in a note today. ``Risk aversion, falling rate differentials and potentially large shifts in corporate hedging behavior suggest the yen could rally further,'' they wrote.

The U.S. currency has lost 16 percent against the euro and 17 percent versus the yen in the past year as the worst housing slump since 1991 forced the Fed to cut its benchmark rate 2.25 percentage points. The Fed lowered the rate it charges commercial banks for loans by a quarter-point to 3.25 percent in early Asian trading.

The dollar's drop helped shrink the U.S. current account deficit last year for the first time since 2001. The current account, the broadest measure of trade, had a $172.9 billion shortfall last quarter, from a revised $177.4 billion gap the prior quarter, the Commerce Department said today.

Technical Measure

The dollar remained lower after a Fed report showed manufacturing in New York fell to the lowest level on record in March.

A technical gauge shows the euro may have risen too far and too fast against the dollar. The Relative Strength Index was at 85 today and has stayed above the 70 level, which signals it may be bound for a reversal, for two weeks. The last time the gauge held above 70, in November, the euro fell about 3 percent against the dollar in the following three weeks. The index for the dollar-yen rate was 21.8, its lowest since November.

Traders saw a 100 percent likelihood the Fed will cut its target rate for loans between banks by at least 1 percentage point to 2 percent at tomorrow's meeting, according to futures on the Chicago Board of Trade. There is about a 20 percent chance the cut will be 1.25 percentage point, futures show.

The dollar is the weakest since at least 1971 based on a Fed trade-weighted index, helping push oil, grains and metals, which are priced in the U.S. currency, to record highs. That in turn is causing economists to lower growth forecasts for the U.S. and preventing central banks, concerned that inflation is accelerating, from cutting rates, further hurting the dollar.

Investors' Confidence

International investors added a net $37.4 billion of U.S. securities in January, slowing from a net $72.7 billion the prior month, the Treasury said today.

``Investors have to be confident that they can be compensated by higher returns'' for investing in the U.S., said Paresh Upadhyaya, who helps manage $50 billion in currency assets as a senior vice president at Putnam Investments in Boston. For that to happen, the dollar has ``to get to a point which is attractive. I don't think we've reached that point.''

JPMorgan Chase bought Bear Stearns for about $240 million after a run on the company ended 85 years of independence for Wall Street's fifth-largest securities firm.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Liz Capo McCormick in New York at emccormick7@bloomberg.net

Last Updated: March 17, 2008 16:06 EDT