Looking back just a few weeks, the markets ushered in the new year with euphoria. Within a few short weeks, things have turned sour. The Dow dropped below the 10,000 mark last week. S&P 500 is down 7.3% from its 15-month closing peak.

Now the question facing investors and traders is whether the market is in a corrective phase. Eric Kuby of NorthStar Investment Management Group thinks so. "I'm in the camp that believes that we are in a correction," he said.

Just call it an endorsement of a collective security policy where 'you go first.'

That was how one economist characterized the G-7 group of finance ministers' stance toward the U.S. Treasury Department's proposed $700 billion intervention to stabilize the financial system.

In a conference call statement, the G-7 - - Germany, the United Kingdom, France, Japan, Italy, Canada, along with the U.S. - - said, "We strongly welcome the extraordinary actions taken by the United States to enhance the stability of financial markets and address credit concerns, especially through its plan to implement a program to remove illiquid assets that are destabilizing financial institutions," The Wall Street Journal reported Monday(subscription required.)

However, none of the other six G-7 members will adopt a program similar to the U.S.'s, German Finance Minister Peer Steinbrueck told reporters in Berlin after the call, Bloomberg News reported Monday.

Economist Peter Dawson told BloggingStocks Monday the G-7's stance is half-hearted, in his interpretation. "In its general statement, the G-7 is on-board with the [U.S] Treasury's program but [German Finance Minister Peer] Steinbrueck's comments are disappointing. Steinbrueck, or another G-7 representative should have followed up with 'and we stand ready to assist the United States and other nations with fiscal measures to support the above goals, if needed, etc.,' " Dawson said. "Right now, the G-7's tone is 'go forth U.S., but we're not getting in the pool right now, the water's too cold.' Given the G-7's complicity in causing the problem and their systemic interest, a more-engaged statement should have been issued regarding fiscal policy options."

Cites AIG's 'interconnectedness'

For example, Dawson said the G-7's corporate involvement in American International Group's (NYSE: AIG) is evidence item 'A' for stronger G-7 involvement. "G-7 companies, banks, and institutional investors benefited from AIG's credit default swaps and related products, and would be hurt by a systemic failure. Since they are parties to the problem, they should also bear some of the costs of the reforms and bailout," Dawson said. "But right now their stance is 'Go ahead U.S. We back your spending your money, but not ours.' That's an inadequate response from our G-7 associates."

Those business executives, economists, and investors/traders who had hoped G-7 economic leaders meeting in Washington over the weekend would take efforts to stem the U.S. dollar's decline may be left feeling slightly disappointed.

Finance chiefs from the G-7 notched-up their rhetoric on the dollar, but provided little substantial evidence they'll take actions -- monetary or fiscal -- to stem the dollar's slide, Bloomberg News reported Sunday night.

"We continue to monitor exchange markets closely, and cooperate as appropriate,'' the G-7 said, Bloomberg News reported, with U.S. Treasury Secretary Henry Paulson adding that the G-7 statement on currencies "reflects market developments and changes in the markets." The G-7 then pledged to implement further monetary and fiscal policies "as appropriate,'' without providing specific details.

No substantive action on dollar

Economist Peter Dawson told BloggingStocks Monday the G-7 statement by the United States, the United Kingdom, Germany, Japan, France, Italy, and Canada amounted to a statement against currency rate volatility, not a substantive effort to bolster the dollar. He added that G-7 representatives, in his interpretation, appeared more concerned about maintaining financial market liquidity due to the ongoing credit slump, than about the dollar's value.

The euro hit an all-time of $1.5915 versus the dollar Thursday, only to become subject to an increasingly rare event in currency markets these days - - a dollar rally.

That's right: you read correctly. The dollar rallied, getting off the deck, as it were, from its record-low versus the euro to gain more than 1 cent for the day to trade at $1.5741 late Thursday.

Trading is likely to be calm to inert heading into Friday, due to the G-7 meeting in Washington of the world's major central bankers and finance ministers.

What inspired the dollar's rally? Independent currency trader Andrew Resnick told BloggingStocks the currency markets interpreted Thursday's lower-than-expected 357,000 U.S. initial weekly unemployment claims as a strong point for the ailing U.S. economy. That fact, combined with the belief that the previous week's claims may have been inflated, due to the earlier Easter holiday, sent traders into buy-dollar mode.

The dollar is mostly weaker today, with the Euro hitting a new low vs. the greenback, following this weekend's meeting of finance officials from the Group of Seven leading nations. Foreign exchange traders interpreted the lack of any meaningful policy statement from the G-7 ministers in response to recent currency market moves as a signal to carry on selling the U.S. unit.

Traders have become increasingly bearish on the U.S. dollar in recent months, motivated in part by large current account and other structural imbalances, as well as a sizable increase in overseas investments by U.S. investors. Dollar-selling momentum has also fed on itself, triggering a sharp boost in bearish sentiment toward the currency.