Plunging dollar will set world markets reeling

By Heather Stewart, economics correspondent

12/03/06 "The Observer" --- -- The slowdown in the US economy, which has sent the dollar into freefall over the past fortnight, will have devastating knock-on effects in markets around the world, analysts warn.

As the US slows, and consumers in the world's biggest economy feel the buying power of the dollar in their pocket declining, global growth will be hit hard, economists say. The greenback took yet another turn for the worse on Friday, after a survey of the US manufacturing sector showed output declining for the first time in more than three years.

Wall Street is now betting that Federal Reserve chairman Ben Bernanke will slash interest rates to stave off a recession. The dollar ended the week at $1.98 against the pound, and $1.32 to the euro, but analysts say there is further weakness to come. 'I think the dollar's going to hell in a handbag,' said David Bloom, currency strategist at HSBC. '

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