In yet another blow to Japan's contracting economy, the dollar tumbled to a 13-year low against the yen Friday on investor dismay over the U.S. Senate's rejection of a bailout for the ailing American auto industry.

The dollar's fall to as low as ¥88.12 - the lowest since August 1995 - puts additional pressure on Japan's exporters, whose overseas earnings shrink as the dollar weakens against the yen. Already, major manufacturers like Toyota and Sony have slashed earnings forecasts amid waning global consumer demand, and Sony and Sharp have announced job cuts.

News of the demise of the $14 billion auto industry bailout and the yen's surge together triggered a big afternoon sell-off on the Tokyo stock market and once again underscored Japan's vulnerability to foreign exchange volatility.

The dollar later recovered to above 90 yen, but remained under the ¥91.43 mark from late Thursday. The benchmark Nikkei 225 stock average shed 5.6% to 8,235.87.

Alarmed, Japanese authorities warned that Tokyo might intervene in the currency market to buy dollars if the yen fails to cool off.

A senior financial ministry official described foreign exchange fluctuations as "too volatile," according to Kyodo news agency. "We will closely monitor the situation in the market and take appropriate actions," Kyodo quoted the unnamed official as saying.

Japan's export-oriented economy is inextricably tied to the U.S., and investors have been closely following the political developments in Washington.

"The automobile sector is a fundamental industry for both the U.S. and Japan, and a failure would be a major blow to Japan as well," said Nagayuki Yamagishi, an equities strategist at Mitsubishi UFJ Securities in Tokyo.

The rescue package sought by Detroit's ailing automakers was earlier approved by the House of Representatives but unraveled in the Senate. Bipartisan talks broke down over Republican demands that the unions agree to steep wage cuts by 2009 to bring their pay into line with U.S. plants of Japanese carmakers.

The breakdown left the fate of the auto industry -- and the 3 million jobs it touches -- in limbo at a time of growing economic turmoil. General Motors Corp. and Chrysler LLC have said they could be weeks from collapse.

The yen's surge comes days after Japan said its economy -- the world's second-largest -- fell into a deeper recession in the third quarter than first thought. The economy shrank at an annual pace of 1.8% in the July-September period, compared with its original estimate of a 0.4% contraction.

Companies are feeling the pain. Earlier this week, Sony Corp. announced plans to slash 8,000 jobs around the world, or about 5 percent of its global work force in a bid to bolster its bottom line. The consumer electronics giant recently lowered its full-year earnings projection to 150 billion yen ($1.5 billion), down 59% from the previous year.

Toyota has also cut its net profit forecast for the year ending March 2009 to 550 billion yen ($5.5 billion), a third of the previous year's earnings.

The dollar has fallen about 20% against the yen this year and could be headed lower if the Federal Reserve cuts interest rates again and investors flee for higher-yielding currencies, analysts said.

Oil prices jumped above $64 a barrel Monday in Asia as regional stock markets rallied on a massive Chinese economic stimulus plan, which could underpin demand for crude.

Light, sweet crude for December delivery was up $3.59 to $64.61 a barrel in electronic trading on the New York Mercantile Exchange by noon in Austria. The contract Friday rose 27 cents to settle at $61.04.

China's $586 billion stimulus package announced Sunday helped lift Asian stock markets Monday. The Shanghai Composite Index surged 7.3%, Japan's benchmark Nikkei 225 index rose 5.8% and Hong Kong's Hang Seng index gained 4.8%.

Oil traders have been looking to equity markets for signs of how severe the current global economic slowdown will be. Crude oil prices were also bolstered by a falling dollar. Investors often use commodities such as oil as a hedge against inflation and a weaker dollar. The euro gained to $1.2848 on Monday from 1.2715 on Friday while the dollar rose to 99.00 yen.

"Oil has been highly correlated to stocks and the dollar," said Clarence Chu, a trader with market maker Hudson Capital Energy in Singapore. "The spending plan may increase crude demand, which is already strong in China."

Another production cut by OPEC may also boost prices. The Organization of Petroleum Exporting Countries could further reduce oil output if a decision last month to slash production doesn't bolster plummeting oil prices, the group's president Chakib Khelil said Saturday. Khelil, who is also Algeria's energy minister, said OPEC seeks prices between $70 and $90 per barrel.

"If we go toward $55, I expect OPEC to call an emergency meeting and announce another cut," Chu said. "The market expects them to cut again in December at the latest."

Oil prices have fallen about 56% since reaching a record $147.27 in mid-July. In the long-term, rising demand in the developing world will likely push prices higher, the International Energy Agency said last week.

According to a summary of the agency's World Energy Outlook report due to be published in full this week, the IEA has hiked its forecast for the price of a barrel of oil in 2030 to just over $200 in nominal terms, compared to last year's estimate of $108 a barrel.

In other Nymex trading, heating oil futures rose 5.66 cents to $2.04 a gallon, while gasoline prices gained 5.10 cents to $1.40 a gallon. Natural gas for December delivery rose 27.6 cents to $7.03 per 1,000 cubic feet. In London, December Brent crude rose $2.45 to $59.80 a barrel on the ICE Futures exchange.

Hartford Financial Services Group Inc. said it will cut 500 jobs, or about 2%, of its total work force this month, citing losses in its investment portfolios and declining revenue.

The Hartford, Conn.-based insurer said Tuesday the layoffs were announced internally on Monday. It employs about 31,000 people.

After reporting disappointing third-quarter results last week, the company said it would slash jobs and other expenses to save $250 million in annual costs by the end of 2009.

The company reported a loss of $2.6 billion, or $8.74 per share, compared with a profit of $851 million, or $2.68 per share, a year ago.

The news sent Hartford Financial's (HIG, Fortune 500) shares plummeting 58% during the week to close at $10.32. Shares fell as low as $8.23 during the week.

Its stock rebounded Monday, closing up 57.8% to $16.28.

Spokeswoman Shannon Lapierre said 500 employees around the country -- including nearly 125 in the Hartford region -- in life and property-casualty insurance operations and corporate staff will be notified by the end of this month that they will be laid off. No layoffs will take place in December, she said.

Less than 1% of the company's 12,600 Hartford-region employees will be affected, including those in Hartford, Southington, Windsor and Simsbury.

In Tuesday morning trading, shares of Hartford rose $1.24, or 7.5 percent, to $17.51.

The Federal Reserve announced Tuesday that will start buying commercial paper - a crucial short-term funding mechanism that many companies rely on for day-to-day operations - from money market mutual funds.

It's the latest effort by the central bank to break through a credit clog that has hobbled lending and threatens to plunge country into a deep and painful recession.
New Fed facility

The Fed is tapping its Depression-era emergency powers and creating a new facility to buy a vast array of commercial paper from the funds.

Money market mutual funds have been under pressure as skittish investors demand withdrawals. Many companies rely on commercial paper to pay workers and buy supplies.

The situation has led to an intense credit crunch for companies depending on commercial paper.

"The short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests," the Fed explained.

The Fed plans to buy an array of commercial paper from the funds.

By doing so, the Fed hopes to improve conditions so that banks and other financial institutions will be more inclined to lend to each other and to consumers and businesses.

Private equity firm CVC has joined with reinsurance giant Swiss Re in a bid for control of the insurance arm of the Royal Bank of Scotland, a British newspaper reported Sunday.

The Sunday Times said Luxembourg-based CVC Capital Partners and the Swiss Reinsurance Co. have made a more than 3 billion pound ($5.2 billion) offer to buy a 51 percent stake in the Royal Bank of Scotland's insurance business. The paper did not identify a source for its report.

Swiss Re's London-based spokesman Tim Dickenson and CVC spokesman James Olley both declined to comment. A call to the Royal Bank of Scotland Group was not immediately returned.

Like other leading British banks, RBS was battered by devastating write-downs connected to the global credit crisis.

On Monday, the government announced it was buying or guaranteeing 20 billion pounds ($34.6 billion) worth of shares in RBS, a move which could leave taxpayers with a majority stake in the Edinburgh-based bank.

RBS has also been trying to shed other assets, including its insurance business, in an effort to raise cash. The Sunday Times said RBS, which controls the Direct Line and Churchill brands, is Britain's second-largest general insurer. The paper also identified

American International Group, which tapped another $12 billion in emergency government funding in the past week, agreed Thursday to curb millions of dollars of spending on junkets, perks and executive compensation.

The troubled insurer has come under fire in recent weeks from lawmakers and regulators for planning to spend big on corporate trips and events even as the government had lent it more than $120 billion.

AIG agreed Thursday to curb certain expenditures after criticism from Congress and New York State Attorney General Andrew Cuomo. The company canceled 160 conferences and events - some that carried price tags of as much as $750,000.

"We know that the attorney general shares our commitment to rebuilding AIG's business and paying back the U.S. taxpayer, and we will address the attorney general's concerns expeditiously," said Edward Liddy, AIG's chairman and chief executive.

Liddy was installed last month to replace the company's previous management after the Federal Reserve extended an $85 billion loan as AIG (AIG, Fortune 500) was on the verge of collapse. In return, the government took a 79.9% stake in the company.

Fed officials said that an abrupt collapse of AIG could have had dire consequences for the already strained financial markets.

On Oct. 8, the Federal Reserve Bank of New York said it would lend AIG another $37.8 billion. In exchange, AIG said it would give the Fed investment-grade, fixed-income securities as collateral.

So far, AIG has borrowed a total of $82.9 billion, according to data released by the Federal Reserve on Thursday. Taken together, the two loans $122.8 billion.

The government loan comes with a steep interest rate. AIG has said it plans to hold onto its property-and-casualty insurance businesses, while selling off the rest of the company to pay the massive debt.

"We have many remarkable businesses and a flexible plan that will allow us to repay the Federal Reserve loan as quickly as possible under our current arrangement," the company said in a statement. "All AIG insurance companies remain financially healthy."

In a letter to AIG directors on Wednesday, Cuomo criticized the company for "unwarranted and outrageous expenditures." The taxpayer support "makes such expenditures even more irresponsible and damaging," Cuomo wrote.

On Thursday, the company and Cuomo said in a joint statement that AIG has agreed to give Cuomo records related to executive compensation and will work with state officials to recoup "any illegal expenditures."

AIG also said it will establish a committee to give the company's board more oversight of salaries, bonuses, stock options, severance payments, gratuities, benefits, junkets and perks.

Additionally, AIG will not make payments under an employment agreement with outgoing CFO Steven Bensinger. According to company filings with the SEC, Bensinger was entitled to receive nearly $10 million in severance, among other payments.

An AIG spokesman declined to comment on the issue of Bensinger's severance.

Bensinger has left AIG, the company announced Thursday. AIG announced that the new CFO would be David Herzog, who has been with AIG since 2001 and served as comptroller since 2005.

Recently minted commercial bank Goldman Sachs Inc. has applied for a New York state banking charter, state officials said Monday.

Governor David Patterson praised the decision, calling Goldman Sachs the "bedrock" of New York's financial community and that it reflects the state's ability to "effectively regulate" banks.

"We look forward to working with [Goldman Sachs] as they transition a substantial portion of their business from an investment bank to a new regulatory scheme," Patterson said in a statement.

Goldman Sachs (GS, Fortune 500) and fellow brokerage Morgan Stanley (MS, Fortune 500) were the last remaining investment banks on Wall Street before federal officials granted the firms' requests to become bank holding companies last month.

The decision to become commercial banks came as rival brokerages Bear Stearns and Lehman Brother collapsed in the fallout of the nation's credit crisis.

As commercial banks, Goldman and Morgan have the ability to purchaMorgan Stanley wrapped up plans to sell a part of itself to Mitsubishi UFJ for $9 billion, the two companies said Monday, reviving hopes that the Wall Street firm will be able to survive the credit crisis.

Shares of Morgan Stanley (MS, Fortune 500), which plummeted in recent days on speculation that the deal could fall apart, staged an impressive rally, surging more than 85% Monday.

As recently as last week, investors feared that Mitsubishi (MTU) might pull out of the investment altogether, putting Morgan Stanley at risk of suffering the same fate as Lehman Brothers, which collapsed just weeks earlier.

Mitsubishi's decision to renew its commitment to the deal, however, provided some assurances to investors about Morgan's survival.

"A $9 billion pad to their balance sheet doesn't hurt." said Ken Crawford of Argent Capital Management in St. Louis, which manages about $800 million in assets but does not own shares of Morgan Stanley.

The New York City-based bank reportedly spent much of the weekend engaged in talks with Mitsubishi over the terms of the proposed $9 billion stock sale, which was first announced just three weeks ago.

Under the original terms, Mitsubishi had agreed to buy a mix of preferred and common stock of Morgan Stanley but reportedly wanted a better deal as Morgan's market value plummeted in recent weeks.

Still, Monday's announcement revealed that the conditions of the deal did not change all that much.

Under the revised terms, Mitsubishi will acquire a 21% ownership stake of Morgan Stanley in exchange for $9 billion, with the majority of that investment coming in the form of both convertible and non-convertible preferred stock both of which pays Mitsubishi a 10% dividend.

Some experts said that reported behind-the-scenes involvement by U.S. government officials may have played an important role in keeping the original terms of the deal intact.

U.S. government officials allegedly intervened in the weekend talks, offering assurances to the Tokyo-based bank about its investment. There were fears that a decision by Mitsubishi to walk away would not only put Morgan Stanley at risk of failure but aggravate the already anxious mood in financial markets.

"There is an interest larger than both entities in creating some sense of calm," said Douglas Ciocca, a managing director at the Leawood, Kansas-based Renaissance Financial Corp., which manages over $1.6 billion.

In recent weeks, some of Wall Street's biggest players have virtually vanished as a result of fear in the market. In mid-September, Lehman Brothers filed for bankruptcy and Merrill Lynch (MER, Fortune 500) sold itself to Bank of America (BAC, Fortune 500).

Morgan Stanley and rival Goldman Sachs (GS, Fortune 500) were already forced to reevaluate their way of doing business amid the market turmoil, asking the Federal Reserve last month to be reclassified as bank holding companies.

The Fed agreed to the request, which means the two firms are allowed to create commercial banking operations that can take deposits.

Citing an internal memo to employees, the Wall Street Journal reported that John Mack, Morgan Stanley's chairman and CEO, was looking to build up the company's deposit base through acquisitions with the capital from the Mitsubishi deal.

Either way, the $9 billion investment is considered to be a life-saving deal for Morgan Stanley and will arguably broaden the reach of both firms domestically and overseas.

"Today's investment further bolsters our strong capital position and, together with our strategic alliance, will accelerate our transition under our new bank holding company structure and help us realize opportunities created by the continuing dislocation in the financial markets," John Mack, Morgan Stanley's chairman and CEO said in a statement. se other retail banks, which could give them a more steady foundation of cash. It also gives them access to loans from the Federal Reserve that were not available to brokerages.

But it also puts Goldman and Morgan under the Fed's supervision, increasing the agency's regulatory oversight and possibly forcing them to raise additional capital. As banks, Morgan and Goldman will be forced to take less risk, which will mean fewer profits.

A call to Goldman Sachs requesting comment was not immediately returned Monday.

The decision to apply for a New York state charter will not preclude Goldman from expanding its business or opening branches outside of the state, according to Bert Ely, principal of Ely & Co., a financial institutions and monetary policy consulting firm in Virginia.

"Banks can have multiple charters," Ely said. Having a New York charter "does not bar them from having other charters," he added.