In part its elan could be attributed to the fact that no market is an island and weakness in the Nasdaq usually spells trouble abroad. Indeed, the Nikkei index in Japan duly shed over 2.5 per cent while bourses across Asia were bled white.

European shares were also expected to suffer, but dealers said they could not help but feel that the United States, with its hunger for foreign capital, had the most to lose.

"It's been amazing how little the Nasdaq's hurt the dollar upto now," said a US bank dealer. "But the market's beginning to wonder how long foreigners will keep pumping money into the US assets when the return on many is turning negative." The Nasdaq index shed 3.4 per cent on Tuesday to a four-month low and a profit warning from Lucent after the bell promised more pain on Wednesday. The index - the most likely bellwether if there is one for the new economy - has now fallen for five weeks in a row and is 37 per cent below its record peak from March.

And yet the euro struggled to make much of the dollar's distraction, only edging ahead to $0.8727 from $0.8717 late in New York on Tuesday. It had rather more luck on the yen, reaching 94.27 yen from 93.87. The dollar also managed to regain some losses against the yen to stand at 108.04 yen from a 107.65 low, though that still left it adrift of the 108.61 level held a day earlier.

The potential danger that the huge US trade deficit posed to the dollar has long been recognised by the market, but had seemed to matter little while booming productivity promised ever higher profits and returns for investors.But a string of corporate profit warnings has swung the mood from greed to fear, leading some to wonder if foreigners will still be so free with their money. Federal Reserve Bank of Dallas president Robert McTeer voiced the concern on Tuesday, saying that if foreigners were ever to question the strength of the US economy, capital flows could reverse and damage the dollar.

Traders say there is little sign as yet of offshore money abandoning the US, though some thought it notable that swap spreads had widened sharply in recent days. Swaps spreads reflect the margin between super safe treasuries and commercial debt and a widening can signify a lessening in risk appetite among global investors. "Look around the world, you've got equities sliding; spreads moving out; emerging currencies under pressure; oil rising; people revising down global growth forecasts and revising up inflation. It's all very edgy," said a dealer at a European bank.

He noted that a favourite gauge of equity sentiment, the Chicago Board's Market Volatility Index, jumped 4.22 per cent Tuesday to a three-month high, suggesting investors were becoming more concerned about the outlook for shares.

There were even wild rumours of China devaluing the yuan and of one or more US investment banks suffering severe losses in junk bond trading."It's the sort of talk that crises are made of," opined the trader."So maybe, just maybe, this is beginning of the end for the dollar's uptrend. But then again, during crises, what's the world's favourite safe haven - the dollar. Go figure."

The other main talking point for the market was Chiyoda Life and the repatriation of portfolio funds.

Dealers doubted that Chiyoda was repatriating much if anything of its portfolio. But its failure, and perhaps more importantly the fact that the authorities allowed it to fail, could encourage other insurers to be even more conservative in their foreign investments.

Indeed, September data on portfolio flows showed life insurers were already leery of foreign bonds, dumping a net 334 billion yen ($3.10 billion) worth."The Chiyoda news will merely reinforce that trend," said a US bank dealer. "But the talk of Chiyoda itself liquidating its positions is probably wide of the mark. We understand it's hoping to pass on its entire portfolio to a new owner."

The real surprise in the data was that offshore investors snapped up 1.18 trillion yen of JGBs bringing their net purchases so far this year to a massive 6.9 trillion. While much of that would be hedged for forex exposure, it also came on top of a trade surplus that averages around one trillion yen a month.

This underlying demand for yen was one reason the currency remained strong despite troublesome fundamentals such as rising debt levels and dismal consumer demand.