Proposed U.S. mortgage aid would do harm -Paulson

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In early Tokyo trading on Friday, the dollar fell below the psychologically important level of 105.00 yen and slid to 104.60 yen, its lowest since May 2005.

The dollar's slide followed Federal Reserve Chairman Ben Bernanke's warning to the Senate Banking Committee in Washington on Thursday that some small U.S. banks may fail because troubled real estate investments may drain their capital during the housing crisis. The dollar hit a lifetime low against the euro and a basket of currencies on Thursday.

As for China's yuan and other issues with China, Paulson told his Chicago audience that progress was being made.

"Frankly, if China does well economically, it benefits us in our economy," he said, adding that was not a popular sentiment, "but it's true."

The People's Bank of China, the central bank, on Friday set the mid-point of the yuan exchange rate against the dollar at 7.1058, its highest level since Beijing re-valued the Chinese currency in July 2005.

(Additional reporting by Patrick Rucker in Washington; Editing by Jan Paschal)

(Reporting by Karen Pierog)

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