Dollar loses haven luster after Japan quake

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The euro was trading at $1.3901 around 2200 GMT, up from $1.3794 at the same time Thursday.

The dollar also weakened against the Japanese currency, falling by one yen to 81.91 yen.

"A major earthquake in Japan is weighing on market sentiment as a difficult week for financial markets draws to a close," said Vassili Serebriakov at Wells Fargo Bank.

In earlier trading, the yen had fallen sharply after the massive 8.9-magnitude quake struck, triggering a huge tsunami in the Pacific.

But the Japanese currency regained its footing, "likely reflecting repatriation flows and safe-haven demand," he said.

Kathy Lien at GFT projected yen strength to be sustained "for a few more days."

"As the world's third-largest economy, Japan has the means to handle this crisis but it could take some time for them to do so. The Japanese economy was weak even before the earthquake hit and in the very short term, the natural disaster will add pressure on Japanese growth," she said.

Lien said there may not be one clear reason for the sell-off in the dollar, typically seen has a haven from risk.

As the reports of earthquake and tsunami damage grew, the dollar's initial gains faded while US stocks rebounded from losses.

The disaster's impact on the global economy "should be nominal and the rally in the euro as well as other higher-yielding currencies indicates that the initial shock is already wearing off for investors," Lien said.

Another factor may be the brighter economic outlook for the US Federal Reserve policymakers as they prepare for next Tuesday's meeting, she said.

The government reported Friday US retail sales had their strongest growth in four months in February.

The monthly retail sales data indicates the strength of consumer spending, the key driver of US economic activity.

"The Fed will probably reserve any immediate judgments to later because the recent rise in oil prices has taken a toll on sentiment and we have yet to see how much of an impact this has had on consumer spending," Lien said.

In late New York trade, the pound edged up to $1.6076 from $1.6054 late Thursday.

Against the Swiss franc, the dollar fell to 0.9294 francs from 0.9317 francs.