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Greek tragedy for euro

business Updated: Mar 24, 2010 21:49 IST
Koh Gui Qing
Koh Gui Qing
Reuters
Koh Gui Qing

The euro hit 10-month lows against the US dollar on Wednesday as investors doubted a solution for Greece’s fiscal troubles was on the cards, with the cautious mood holding Asian stocks below two-month highs.

Concerns around Greece’s fiscal problems returned despite Germany saying overnight for the first time it may support a euro-zone financial aid package for Athens.

Some analysts said Germany’s support, which was pegged to tough terms including help from the International Monetary Fund, made it unlikely European Union leaders would agree on a deal for Athens at a two-day summit starting on Thursday.

That tempered demand for riskier assets such as stocks and commodities, with Japan’s Nikkei backing away from a two-month high hit earlier in the day.

In Europe, gains in stocks may also prove tepid, with financial spread betters expecting Britain’s FTSE 100, Germany’s DAX and France’s CAC-40 indices to open up to 0.3 percent higher.

“Be it the EU or the IMF, how either of them would rescue Greece remains uncertain. The euro looks set to trade defensively in the near term,” said Masafumi Yamamoto, chief currency strategist at Barclays Capital in Tokyo.

Anxiety over Greece could overshadow a raft of US and European news out Wednesday, including Germany’s flash PMI, US durable goods orders, and a pre-election UK budget.

The euro fell to $1.34 on trading platform EBS, its lowest since May 2009. It has fallen 6.3 per cent so far this year, its worse performance since 2005 when it shed 12.7 percent.

Against the Swiss franc, the euro hit a record low of 1.4232 francs on EBS, fuelling talk among traders the Swiss National Bank may intervene in the market again to weaken its currency.

A firmer US dollar dampened commodity prices, with oil down 68 cents at $81.2 a barrel. Gold erased earlier gains to be flat around $1,100.95. Gold typically falls as the dollar firms, as strength in the US unit curbs gold’s appeal as an asset

“If we continue to have nervousness over Europe and the euro, then we are likely to see supported dollar values and therefore slightly weaker gold values,” said David Wilson, an analyst at Societe Generale.

A falling euro also boosted the yen and weighed on Japanese exporters. The benchmark Nikkei closed up 0.4 per cent, paring a 1 per cent rise earlier in the day.