Dollar mixed on bailout strife

The dollar was mixed Friday against major currencies as the fate of the government's proposed $700 billion intervention remained unclear.

The Japanese yen rallied as other foreign currencies pulled back from earlier gains.

The greenback bought ¥106.02 in early New York trading, down from from ¥106.69 late Thursday.

The 15-nation euro slipped to $1.4610 from $1.4614. And the British pound traded at $1.8414, up from $1.8348.

Meanwhile, lawmakers resumed negotiations over the government's bailout proposal. Talks broke down late Thursday following at high-level meeting at the White House as Republican members of Congress voiced opposition to the plan. President Bush said early Friday that he believes the plan will pass muster with lawmakers soon. (full story)

"It seems unthinkable that a deal won't be reached," wrote Scotia Capital currency strategist Steve Malyon in a note to clients. "The stakes are simply too high."

Failure to reach an agreement on a bailout could cause the financial system to collapse and push the country into a deep recession, Malyon said.

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Still, if the impasse is resolved, "the stage will be set for a rebound in carry in the short term." But until then, "things are bound to be volatile," he said.

Other news keeping investors on edge was the latest bank bailout. Late Thursday, the Federal Reserve seized Washington Mutual - the nation's largest thrif - in the biggest bank failure in history. WaMu was then sold to JP Morgan. The news served to underscore how deep the financial crisis extends. To-date 13 banks have faced failure.