Euro weakens, cost of borrowing may increase

SINGAPORE / SYDNEY - The euro extended its decline against the dollar to a third day after Standard & Poor's (S&P) cut Italy's credit rating, adding to concern Europe's debt crisis will raise borrowing costs for countries in the region.

The euro fell toward its lowest since 2001 versus the yen before Greece resumes discussions with its creditors over the next installment of rescue funds.

The dollar gained against most major currencies before the Federal Reserve's policy meeting on Tuesday.

"We're going to see the euro continue to come under pressure," said Chris Weston, an institutional trader at IG Markets in Melbourne. "One of the big things we're very concerned with is what's going to happen with Italian borrowing costs and this could see some further selling of bonds."

The euro slid to $1.3619 as of 6:41 am in London from $1.3686 in New York on Monday. It declined to 104.24 yen from 104.82 on Monday and touched 103.90 on Sept 12, the least since June 2001. The dollar bought 76.54 yen from 76.58.

The rating for Italy, which has Europe's second-largest debt load, was lowered to A from A+, S&P said on Monday in a statement.

Weakening prospects

The European Central Bank last month started buying Italian and Spanish government bonds after the region's debt crisis pushed their yields to euro-era records.

Greek Prime Minister George Papandreou's government was scheduled to hold another call with European Union and International Monetary Fund officials on Tuesday night in a bid to secure a sixth installment of rescue funds, amid concern that the austerity measures demanded are deepening a three-year recession and making it harder for the government to meet its deficit goals.

Greek Finance Minister Evangelos Venizelos held "substantive" discussions with the officials, the finance ministry said in an e-mailed statement after a teleconference on Monday night.

Hitting lows

South Korea's won reached 2011 lows as Asian stock losses and the European debt crisis damped demand.

"Risk aversion has gone to the next level and the losses are justified, given that European officials have not been able to reassure the markets on the default risk," said Suresh Kumar Ramanathan, a strategist at CIMB Investment Bank Bhd in Kuala Lumpur. "Asian assets are getting sold off in favor of cash."

The won dropped 1.4 percent to 1,153.48 for each dollar after earlier touching 1,156.50, the lowest level since Dec 22, according to data compiled by Bloomberg.

Bloomberg News

(China Daily 09/21/2011 page16)