updated 3/11/2005 3:42:54 PM ET 2005-03-11T20:42:54

The U.S. dollar fell against the euro and the Japanese yen Friday after the United States reported its second-highest monthly trade deficit ever, reinforcing concerns about the health of the economy.

Major Market Indices

The U.S. Commerce Department reported Friday that January trade gap was $58.3 billion, 4.5 percent higher than December’s and just below the all-time high of $59.4 billion in November.

Most economists had expected the U.S. trade gap in January to remain relatively steady, with a consensus that it would widen only a bit to $56.5 billion.

The 12-nation euro rose to $1.3459 in late New York trading Friday, up from $1.3424 late Thursday. The dollar also fell to 103.88 yen from 104.02.

The British pound bought $1.9252, up from $1.9224 late Thursday, while the dollar fetched 1.1498 Swiss francs from 1.1532, and 1.2043 Canadian dollars from 1.2031.

The soaring U.S. trade deficit must be financed by foreigners willing to hold U.S. dollars in exchange for the products they sell to the United States. The concern has been that has been that the trade deficit at some point could rise so far that foreigners become reluctant to hold dollar-denominated assets like stocks and bonds.

The dollar had fluctuated Thursday on remarks by Japanese Prime Minister Junichiro Koizumi about possibly diversifying the nation’s massive foreign reserves. Japan is the world’s top holder of foreign reserves, mostly in U.S. Treasury bonds, and some traders saw the remarks as a reason to sell the dollar.

The dollar recovered when Ministry of Finance officials denied that Japan is about to pursue such a policy. Hiroshi Watanabe, the head of international affairs at the ministry, said it would be unwise for Japan to consider selling its dollar reserves now.

Although Koizumi’s comment was not seen as a shift in Japanese policy, it reminded the market of lingering concerns about the dollar. Market concern over the U.S. trade and budget deficits have dragged the dollar down since last year, when the euro shot up from about $1.20 in September to an all time high of $1.3667 at the end of December.

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