Dollar drops broadly on rising risk aversion

NEW YORK (Reuters) - The dollar dropped against most currencies on Friday as rising risk aversion stoked by a larger than expected quarterly loss at a U.S. insurer helped bolster low yielding currencies such as the yen.

The loss from American International Group (AIG.N: Quote, Profile, Research), the world's largest insurer by market capitalization, rekindled concerns about credit problems and ongoing risk to the U.S. economy, particularly with crude oil again rising to a record.

That put into question comments from U.S. Treasury Secretary Henry Paulson, who on Thursday said that he believed the credit crisis was "closer to the end than the beginning" and prompted investors to dump riskier assets.

Gains on the back of a narrower U.S. trade deficit for March, on a record plunge in the value of imports even as average oil prices surged to a record, proved fleeting. The dollar's recovery of some losses as the Standard & Poor's 500 Index pared declines was also brief.

"The rise in risk aversion is mostly AIG," said Ron Simpson, director of FX research at Action Economics in Tampa, Florida. "It's brought credit market nervousness back."

Midway through the New York session, the dollar was down roughly 0.4 percent against a basket of currencies to 73.167.

The euro rose 0.3 percent to 1.5447, though off the day's high of $1.5489.

The euro's gains were on the back of those in the previous session after ECB President Jean-Claude Trichet said on Thursday that inflation remained his top concern, suggesting the bank may not cut interest rates any time soon.

However, the euro was still almost 4 percent off its record high versus the dollar set in April as a series of soft data keeps the single currency on the back foot.