Reuters: US Dollar Report: FOREX-Euro falls near 2-year low on Spain worries

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FOREX-Euro falls near 2-year low on Spain worries May 29th 2012, 14:09 Tweet Share this Email Print Tue May 29, 2012 10:09am EDT * Euro stays near last week's low just below $1.25 * Spanish banking problems overtake worries about Greece * Doubts grow whether Spain can support banks on its own By Wanfeng Zhou NEW YORK, May 29 (Reuters) - The euro slipped toward a near two-year low against the dollar on Tuesday and worries about Spain's soaring borrowing costs and its troubled banks looked set to prompt more selling of the common currency. Spanish bond yields held near peaks and the spread between Spanish and German government bond yields hit its highest since the euro was launched in 1999 after a government source said Madrid will recapitalize nationalized lender Bankia by issuing new debt. In the near term, traders said the euro was set to retest its Friday's low of $1.2495 - its weakest since July 2010 - after having failed to clear resistance around $1.2625 for three days in a row. Beneath that, the immediate target lies around $1.2450, where traders reported stop-loss sell orders and option barriers. "Rising Spanish bond yields remain a key signal that investors are growing increasingly nervous about the outlook for Europe's fourth-largest economy," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. The euro fell 0.1 percent to $1.2527, having hit a session low of $1.2508. It briefly edged higher after data showing a rise in U.S. home prices in March encouraged investors to take on some risk. Earlier, the single currency also found support after Greek polls showed more support for pro-bailout parties ahead of the country's election on June 17, easing fears Greece may leave the euro zone. But the gains were also short-lived. Many traders expect further downside in the euro as they fear troubles at Spanish banks, hit by a property slump, could further complicate Madrid's efforts to rein in its debt. Spanish 10-year bond yields hovered around 6.5 percent. A level of 7 percent is seen as critical. Euro zone countries that have previously requested bailouts did so soon after their 10-year yields rose above that mark. "The bad news just keeps coming and if Spain were to ask for a bailout we would see the euro come under more pressure," said Steve Barrow, head of G10 currency research at Standard Bank. "The euro remains a currency that is sold at every opportunity. We have revised our three- to six-month forecasts down to $1.15 from $1.20 earlier." Spain's fourth-largest lender Bankia has asked for a bailout of 19 billion euros, in addition to 4.5 billion euros the state has already pumped in to cover possible losses on repossessed property, loans and investments. Prime Minister Mariano Rajoy has ruled out seeking outside aid to revive Spain's banking sector, but many investors are skeptical that this will be possible. The dollar briefly slipped against the yen after data showed U.S. consumer confidence unexpectedly fell to its lowest level in four months. The dollar stood at 79.44 yen, not far from a recent three-month low of 79.002 yen set on trading platform EBS. Tweet this Link this Share this Digg this Email Reprints Comments (0) Be the first to comment on reuters.com. Add yours using the box above.

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