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Euro hits four-year low after German short-selling ban

The euro hit a new four-year low against the dollar in Tokyo today after a move by Germany to ban certain market trades fuelled fears for Europe's banks, amid a deepening debt crisis.

business Updated: May 19, 2010 14:30 IST


The euro hit a new four-year low against the dollar in Tokyo on Wednesday after a move by Germany to ban certain market trades fuelled fears for Europe's banks, amid a deepenin debt crisis.

Analysts said Germany's attempt to reduce volatility by imposing new restrictions on speculative short selling had backfired, as the surprise and uncertainty it generated sent the single currency plummeting.

Shares across Asia were also lower as the euro's woes weighed on exporters and worries about the eurozone debt crisis persisted, despite a European effort to contain the problem with a trillion-dollar rescue package.

"The German decision to ban short-selling suggested policymakers were deeply worried about threats to their banks from their lending to Greece," said John Kyriakopoulos of National Australia Bank in Sydney.

The euro slid to a four-year low of 1.2144 dollars in Tokyo from 1.2162 dollars in New York Tuesday, before recovering slightly to 1.2210.

Germany's securities market regulator slapped a ban Tuesday on so-called naked short-selling in the shares of 10 financial institutions and eurozone government bonds, a move it hoped would put an end to severe fluctuations.

Naked short-selling occurs when investors sell securities they do not own and have not even borrowed, hoping to be able to buy them back later at a lower price, thereby earning a profit. In regular short-selling the trader borrows the security before selling it.

"The extraordinary volatility of the bonds of eurozone states" justified the short selling ban, said a statement from Germany's securities market regulator, Bafin.

But the move fuelled uncertainty about its impact, about potential replication by other European countries, as well as how and to whom it would apply and how it would be enforced, said Mitul Kotecha at Credit Agricole.

"Once again a single eurozone country has enforced a unilateral measure in an uncoordinated fashion," Kotecha said.

In Asian trade Tokyo ended 0.54 per cent, or 55.8 points, lower at 10,186.84 and Hong Kong fell 1.07 per cent by the break. Singapore was down 1.42 per cent.

Sydney fell to its lowest level in nine months, giving up 1.87 per cent, or 83.6 points, to close at 4,387.1, weighed by the debt fears as well as a proposed 40 per cent tax on mining profits.

The region followed a 1.08 per cent slump on Wall Street.

However, Shanghai was up 1.08 per cent, reversing earlier losses on bargain hunting, although dealers remained jittery about the eurozone and probable government moves to tighten credit.

After agreeing a 110 billion euro (140 billion dollar) bailout for Greece and a 750 billion euro fund for other European Union nations that may struggle to repay loans, Europe's leaders are scrambling to enact their plans.

There are lingering concerns that a default would hit the financial system in the same way the Lehman Brothers collapse did in 2008.

Greece on Tuesday received a badly-needed 14.5 billion euros of EU loan support just a day before it needed to pay nine billion euros on a maturing 10-year government bond.

To clinch the EU-IMF bailout, aimed at helping its economy stay afloat in a growing recession, the Greek government has had to enforce a barrage of deeply unpopular tax hikes and wage and pension cuts. The country is braced for new strikes against austerity measures this week.

Spain and Portugal have also announced they will accelerate cuts to their public spending in order to restore market confidence. However, such moves have also triggered concerns over long-term growth.

Oil was lower, with New York's main contract, light sweet crude for delivery in June, dipping to an intra-day low of 67.90 dollars a barrel -- its lowest this year -- before recovering to 68.19 dollars in afternoon trade. It ended at 69.41 in the United States.

London's Brent North Sea crude for July delivery was down 36 cents to 74.07 dollars.

Gold opened at 1,216.50-1,217.50 US dollars an ounce in Hong Kong on Wednesday, up from Tuesday's close of 1,215.00-1,216.00 US dollars.

In other markets:

-- Seoul closed 0.80 per cent, or 13.16 points, lower at 1,630.08.

-- Taipei fell 0.34 per cent, or 26.14 points, to 7,559.16.

Nan Ya Plastics dropped 2.26 per cent to 60.5 Taiwan dollars while Taiwan Semiconductor Manufacturing Co closed 0.34 per cent lower at 59.3.

-- Manila closed 1.31 per cent, or 42.88 points, lower at 3,222.19.

Ayala Corp. was unchanged at 320 pesos while Energy Development Corp. was down 2.94 per cent to 4.95 pesos.

Philippine Long Distance Telephone Corp. was down 0.61 per cent at 2,455 pesos.

-- Wellington ended 0.95 per cent lower, losing 29.80 points to 3,121.88.

Contact Energy eased 1.5 per cent 6.01 New Zealand dollars and Telecom fell one per cent to 2.05. ING Property Trust closed down 2.6 per cent at 74 cents.

First Published: May 19, 2010 14:24 IST

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