Dollar soars on Fed taper turmoil

The dollar soared Thursday as global markets reeled from the US Federal Reserve's signal it may start to taper its massive stimulus this year.

News of a cash crunch in China also sent jitters through the market, driving investors into the safe-have dollar.

The euro fell to $1.3223 around 2200 GMT from $1.3297 late Wednesday.

The dollar jumped against the Japanese currency, to 97.27 yen from 96.39 yen, while the euro rose to 128.62 yen from 128.24.

"The price action in the US dollar today confirms that yesterday's Federal Reserve meeting marked a major turning point for the greenback," said Kathy Lien of BK Asset Management.

Stock markets across the globe and commodity prices swooned after Federal Reserve Chairman Ben Bernanke said Wednesday that the central bank could begin to wind down its $85 billion-a-month stimulus program as early as this year if the US economy continues to improve.

Analysts said the markets focused on the timetable for the tapering instead of the Fed's statement that any move is conditional on the economic outlook.

The world's reserve currency also benefited from renewed concerns about slowing growth in China, the world's second largest economy, after weak manufacturing data.

Lien noted that interbank overnight lending rates in China had spiked to a record high in a rise that began two weeks ago, but the central bank has refrained from injecting money into the system.

The situation was made worse by weakening economic data, she said.

"Now China finds itself in a liquidity crunch begging for the central bank to step in," Lien said.

"The central bank however refuses to do because they want to punish speculators and are in the midst of reforming the economy but the longer they hold off, the more disruption it will have on China's economy and the global financial markets."

The dollar rose to 0.9275 Swiss franc from 0.9277 late Wednesday.

The pound, however, was stronger against the greenback, fetching $1.5501, up from $1.5483.