The dollar declined to a three-year low against the yen on speculation banks will report more losses from the collapse of the U.S. subprime-mortgage market.

The currency fell to less than 103 yen for the first time since January 2005 and was within 1 cent of its weakest ever against the euro as stocks dropped and the cost of protecting corporate debt from default rose to record highs. The dollar slipped before an industry report forecast to show manufacturing in the U.S. dropped to the lowest level since April 2004.

``Dollar risks are here to stay,'' Benedikt Germanier, a Stamford, Connecticut-based currency strategist at UBS AG, the second-biggest currency trader, wrote in a note to clients. Investors ``are reducing dollar exposure with U.S. downside growth risks.''

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The dollar weakened to 102.62 yen, the lowest since Jan. 28, 2005, before trading at 102.91 at 11:09 a.m. in London, from 103.74 in New York on Feb. 29. It traded little changed at $1.5180 per euro at the end of last week, when it reached $1.5239, the lowest since the European currency's debut in January 1999.

The yen gained the most versus the South African rand and the Taiwanese dollar as credit-market losses prompted investors to reduce holdings of higher-yielding assets financed with loans from Japan. The yen advanced 1.5 percent to 13.0519 per rand and 1.4 percent versus the Taiwanese currency to 3.309.

The New Zealand and Canadian dollars also rose versus the U.S. currency as the price of gold climbed to a record and crude oil traded to near $102 a barrel.

`Free-Fall'

``The dollar is in a clear free-fall, down versus every major and emerging-market currency,'' Jan Loeys, head of global- market strategy at JPMorgan Chase & Co. in London, wrote in a note to clients. ``The rate story is the dollar's Achille's heel.''

MBIA Inc. and Ambac Financial Group Inc., the bond insurers hobbled by $10 billion of writedowns on subprime debt last year, said losses continued into 2008. Japanese consumer finance firm Takefuji Corp. said today it may report losses of as much as 30 billion yen ($289 million) on subprime-related derivatives transactions. The yen gained to 156.29 per euro from 157.46.

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