An employee speaks on his mobile phone at the headquarters of the Irish Stock Exchange in Dublin. The euro fell for a third day against the dollar amid concern that Europe's debt crisis will persist. [David Levenson / Bloomberg]

Eurozone currency declines amid government fund-raising worries

LONDON - The euro fell for a third day against the dollar amid concern that Europe's debt crisis will persist, making it difficult for governments to raise funds.

The 17-nation currency dropped for a second day versus the yen in the hours before Portugal sold six-month bills on Wednesday. The dollar traded near a one-week high against the yen before a report that may show US services industries grew at the fastest pace in the four and a half years, adding to evidence that the world's largest economy is strengthening.

"The debt concerns are something that will come back repeatedly and periodically through the course of the year," said Adam Cole, head of global currency strategy at RBC Capital Markets in London. "It will be a recurring theme for the euro. The market does still show some sensitivity to supply and the appetite for supply."

The euro weakened to $1.3267 as of 8:13 am in London, from $1.3308 in New York on Tuesday. The single currency depreciated to 108.73 yen, from 109.17. The dollar was at 81.97 yen from 82.04 yen on Tuesday, when it touched 82.28 yen, the highest level since Dec 29.

The currency has extended last year's 6.5 percent decline as concern about the sovereign-debt crisis dogs the region. Switzerland's central bank won't take Irish government bonds due to be repaid between 2011 and 2025 as collateral, the Irish Independent reported on Wednesday, citing data from the bank.

Portugal bill sale

The bank excluded Irish government debt and bonds from a group of Irish and foreign banks based in the country from its list of eligible assets for so-called "repo" deals, the Dublin-based newspaper reported on Wednesday.

Portugal is the first of Europe's high-deficit nations to test investor demand for debt this year after the threat of default forced Greece and Ireland to seek bailouts in 2010. The government debt agency, known as IGCP, plans to auction 500 million euros ($663 million) of bills repayable in July.

Poland may sell as much as 6.5 billion zloty ($2.2 billion) of January 2013 and April 2016 bonds, according to the Finance Ministry. The two-year yield is likely to be at least 4.9 percent, the highest level since an auction in February, and the five-year debt will yield at least 5.6 percent, the most since December 2009, according to analysts at PKO Bank Polski SA, ING Bank Slaski SA and Bank Handlowy SA, and data compiled by Bloomberg.

"We've got concerns about Europe," Patrick Perret-Green, Singapore-based head of Asian currency strategy at Citigroup Inc, said. "Everyone knows about the huge amount of refunding and public financing issuance that's got to go on in Europe this year. We're still fairly dollar constructive."

US data

The greenback strengthened versus all but two of its 16 major counterparts on speculation US reports will show companies added the most jobs in three years and service industries expanded at the fastest rate since May 2006.

"A string of upbeat economic news is bolstering optimism about the US recovery," said Mike Jones, a currency strategist at Bank of New Zealand Ltd in Wellington. "This is contributing to a firmer dollar."

US employment rose by 100,000 in December, the most since November 2007, according to a Bloomberg survey of economists before the ADP Employer Services report on Wednesday. The Institute for Supply Management's non-manufacturing index, which covers about 90 percent of the economy, rose to 55.7 in December, the highest since May 2006, another survey showed before the data.

The Dollar Index, which tracks the greenback against the currencies of six US trading partners including the euro and the yen, rose 0.1 percent to 79.539, its third day of gains.

South Korea's won fell the most in two weeks as overseas investors sold more local shares than they bought for the first time in three days and signs of a recovery in the US economy eroded the yield advantage of the nation's assets.

"An improving US economy and a stronger dollar may prompt investors to turn their attention away from (South) Korea and to developed nations," said Yun Se-min, a currency trader at Busan Bank in Seoul.

"That can limit flows, but (South) Korea's economy is still one of the most promising in the emerging markets so I think we will see continual flows from overseas this year."

The won slid 0.4 percent to 1,125.96 per dollar, according to data compiled by Bloomberg.

Bloomberg News

(China Daily 01/06/2011 page16)