Dollar Rises Off 2 1/2-Year Low Against Yen

The dollar advanced to 109.18 yen midafternoon, up from 108.68 late Wednesday in New York. The Thanksgiving Day holiday in the U.S. kept many players on the sidelines.

Worries about weakness in the U.S. economy -- Japan's biggest export market -- and recent volatility in global financial markets pushed the dollar to 2 1/2-year low of 108.25 against the yen overnight.

But having seen Japanese importers buy the greenback against the Japanese currency Thursday, speculators followed suit, covering their short positions, dealers said.

"The yen-crosses underwent major adjustments yesterday (Wednesday), so now we're seeing some buying-back" in a very thin market, said Masashi Matsuzawa, senior dealer at Mizuho Corporate Bank.

While the thin holiday trade could invite sudden, sharp moves, traders expected the market to be largely subdued for the rest of the day.

In the longer term, though, the dollar may face more downward pressure as lingering credit market woes continue to weaken the U.S. currency, traders said.

Asked about the dollar's drop, Finance Minister Fukushiro Nukaga told Dow Jones Newswires that "we will closely watch that issue," but gave no clear sign of currency-market intervention to try to weaken the yen.

Nukaga was cautious about the outlook for Japan's economy and said the government must closely monitor how the fallout from defaults on risky housing loans affects consumer spending in the U.S.

Meanwhile, the euro marked a third straight day of record highs against the dollar, rising to $1.4873, up from $1.4848 late Wednesday in New York.

The dollar was mixed against other regional currencies, rising to 43.175 Philippine pesos from 43.030 the previous day, and to 3.3815 Malaysian ringgit from 3.3825. It fell to 7.7798 Hong Kong dollars from 7.7815, and to 1.4507 Singapore dollars from 1.4507 from 1.4520, however.

Japanese financial markets will be closed Friday for the Labor Thanksgiving Day holiday. The markets will reopen on Nov. 26.

U.S. financial markets will be closed Thursday and early on Friday.