The dollar gained one yen, aided by talk of U.S. funds selling Japanese shares to cover equity losses at home, while the Swiss franc slipped after the Swiss National Bank cut interest rates to weaken its currency.

The SNB cut its key interest rate target range by 50 basis points, saying franc strength had led to tighter monetary conditions. The franc dropped half a centime against the euro and the dollar to around 1.45 francs against both.

"(The SNB rate cut) wasn't totally out of blue as we have expected they might cut at some point but the SNB is running out of room now. The next question is whether intervention follows," said Lee Ferridge, head of global currency strategy at Rabobank.

Turmoil on stock markets around the world has generated safe haven demand for the Swiss franc and the SNB's target range is now 0.25-1.25 percent.

Turbulence on Wall Street has darkened the medium-term outlook for the dollar, with analysts questioning the U.S.' ability to attract funds to offset its current account deficit.

But increased investor risk aversion as a result of the general equity volatility has prompted U.S. investors to repatriate funds to secure their money at home.

"Repatriation could be helping the dollar but it is consolidation following some stabilization in the U.S. stock markets," said Jake Moore, currency strategist at Barclays.

"But I don't think this is a fundamental turnaround because there are still major uncertainties out there. Stock markets will still be the primary focus and a hangover from financial markets will undermine the dollar."

By 8:40 a.m. EDT the dollar had gained one percent from late New York levels on Tuesday to stand at 117.74 yen.

Against the euro, the greenback was trading at $0.9995, gaining from Tuesday's low of $1.0061.


The SNB, with the Bank of Japan, has kept the lowest interest rates among major economies in an effort to boost growth.

The SNB, which has loudly protested against franc strength, also said it now saw growth in gross domestic product at considerably below one percent in 2002.

Speculation is rising this latest rate cut could encourage other major central banks to slash rates now that massive losses in equities worldwide threaten a global recovery, although the Bank of England and the European Central Bank declined comment.

The market is now pricing out the possibility of even a quarter-point rate hike from the Federal Reserve and the Bank of England this year.

David Bloom, currency strategist at HSBC Financial Markets, said he did not expect coordinated rate cuts, although in the event of financial dislocation or systemic failures rates could come down.

"Markets are functioning perfectly normally at the moment and central banks aren't there to prop up equity markets," Bloom said. "This is a currency-related move and European authorities are happy to see the euro higher so I don't see why the ECB should cut rates."


Tokyo's benchmark Nikkei share average fell more than three percent to a five-month low on earnings jitters and Thursday's fall in U.S. hi-tech shares.

On Thursday, the high-tech Nasdaq index fell 3.89 percent and U.S. stock futures are pointing to a mixed opening on Wall street.

On the back of equity turmoil, U.S. Treasuries are garnering safe-haven demand with two-year note yields tumbling to record lows this week and five-year note yields closing at their lowest level in four decades on Thursday.

Next week is packed with key economic indicators with the United States releasing consumer confidence data, growth figures, manufacturing index and jobs data.

"Flight to quality has been a driving factor for the dollar," said Stacey Seltzer, currency strategist at Brown Brothers Harriman. "But the market overall is lacking a central theme right now. Next week is a big week for the U.S. and data could kick us into some direction."

The euro failed to capitalize on encouraging data showing net investment in the region almost doubled in May from the previous month.

The single currency has spent most of the past few sessions flirting with parity after its run to a 2-1/2 year high last week, leaving analysts wondering whether the euro has found its comfort level for now.

With no key U.S. data until next week, the market will closely watch final U.S. Michigan consumer confidence data for July due at 9:45 a.m. EDT