Euro drops below $1.40 on European debt crisis

by Noor Bangash Wed Sep 14, 2011 1:06 pm

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TOKYO: The euro lost further ground Tuesday amid fresh fears that Greece's debt crisis could spread to Italy and Spain, sending markets lower globally.

The single unit traded at $1.3942 in Tokyo trade, slipping from $1.4029 in New York Monday.

The euro bought 111.84 yen, falling from 112.51 in New York. The dollar was at 80.17 yen, easing from 80.24 yen.

The euro fell even as eurozone financial ministers met in Brussels to discuss a new rescue package for Greece, as fears mounted that Italy or Spain were next after both nations saw their borrowing costs soar.

The ministers said they would work to prevent the debt crisis from engulfing the eurozone's respective third- and fourth-biggest economies and would consider measures to "enhance" the European Financial Stability Facility, the 400 billion euro ($561 billion) fund set up to lend to eurozone nations.

International Monetary Fund managing director Christine Lagarde said Monday that the turmoil that has raised fears of an Italian financial meltdown is "essentially market driven."

But she added that while Greece "has done a lot of work" to reduce deficits, "more work needs to be done."

Market players eyed further falls for the beleaguered euro amid a lack of clear near-term fixes for Europe's sovereign debt problems, said Masafumi Yamamoto, chief FX strategist at Barclays Capital in Tokyo.

"One can't expect any near-term solutions, despite the possibility the market may be swung by headline statements concerning Greek debt restructuring or additional aid, the Italian problem, stress tests or other issues raised at the meeting of EU finance ministers," he told.

Credit Agricole echoed the sentiment in a note to clients.

"The fact that Italy and Spain are becoming increasingly embroiled in the crisis is a worrying development for policy makers," it said.

"It is unlikely that pressure will ease over coming sessions unless there is a clear and strong agreement in Europe." (AFP)