The dollar - to which the Hong Kong currency is pegged - plunged against major currencies, while the euro rose above US$1.31. The dollar fell on concerns about central banks' diversifying their reserves and the greenback's narrowing yield advantage over other currencies.

Retailers fell slightly as investors fretted about heavy discounting on the day after Thanksgiving, the start of the holiday shopping season.

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"On a day like today, markets move all over the place because there is no liquidity and no people are in," said Mike O'Hare, at JPMorgan Securities. "The dollar is weaker, and there is a fear of interest rate hikes here because of what's happening in Europe."

At midday Friday in New York, the Dow Jones Industrial Average was down 34.76 points at 12,292.19.

At midday in New York the Standard & Poor's 500 Index was down 2.62 points, or 0.19 percent, at 1,403.47. The Nasdaq Composite Index was down 3.02 points, or 0.12 percent, at 2,462.96.

Shares of retailing giant Wal-Mart Stores had dipped 0.3 percent to US$47.90 at midmorning, when the S&P Retail Index was down 0.3 percent.

The US stock market was shut Thursday and was closing at 1pm Friday. Volume was very thin on the New York Stock Exchange.

The dollar fell to its lowest level in 19 months against the euro on speculation the Federal Reserve will lower interest rates early next year as central banks in Europe increase them.

The US currency extended its losses after breaching US$1.30 against the euro for the first time since April 2005, a level where traders had placed automatic orders to sell the dollar. The European Central Bank has raised rates to an almost four-year high and President Jean-Claude Trichet on November 20 said inflation remains a threat. The Fed has left rates unchanged since August.

"The break of 1.30 is a strong signal that the dollar has to weaken," said Carsten Fritsch, a currency strategist at Commerzbank in Frankfurt.

"The sentiment for the dollar is negative. In the euro-zone, growth will remain strong."

Against the euro, the dollar traded as low as US$1.3109 and was at US$1.3082 late morning in New York, from US$1.2945 Thursday. The dollar also fell to 115.88 yen, from 116.30 on the Tokyo market earlier Friday, and to as low as US$1.9351 versus the UK pound, the weakest in almost two years. The euro traded at 151.63 yen, from 150.52 Thursday, after touching a record of 151.74 Friday.

The US currency fell for three straight years through 2004 versus the euro and the yen as the country's trade deficit widened, reaching a record US$1.3666 per euro on December 30, 2004. It advanced against the euro and yen last year as the Fed pushed borrowing costs higher at every meeting.

Traders are betting the Fed will cut borrowing costs in 2007. REUTERS, BLOOMBERG