Euro Falls to 5-Month Low on Conflict Between Georgia, Russia

By Stanley White

Aug. 11 (Bloomberg) -- The euro slumped to a five-month low against the dollar after an armed conflict between Russia and Georgia spread to a second region.

The 15-nation currency fell to a two-month low versus the yen as warplanes in the separatist Abkhazia region of Georgia attacked Georgian positions. The former Soviet republic withdrew troops from South Ossetia after four days of fighting with Russian forces. The New Zealand dollar traded near an 11-month low and Australia's dropped to its weakest in six months as Georgia's fighting with breakaway provinces and Russian troops prompted traders to pare holdings of higher-yielding assets.

``Traders will look for opportunities to exit bets on euro strength,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``This conflict pits Europe versus Europe, and that will discourage people from holding the euro. Risk aversion will also weigh on sentiment.''

The euro fell to $1.4907 per dollar, the lowest since Feb. 26, before trading at $1.4960 at 8:15 a.m. in Tokyo, from $1.5005 late Aug. 8 in New York. The euro weakened to 164.53 yen from 165.38 late last week. It earlier touched 164.52 yen, the lowest since June 5. The dollar was little changed at 109.99 yen.

The euro may fall to $1.4650 this month, Soma forecast.

New Zealand's currency bought 70.12 U.S. cents from 70.45 cents late last week, when the currency fell as low as 69.83 cents, the weakest since Sept. 11, 2007. Australia's dollar traded at 88.67 U.S. cents from 88.85. It touched 88.37 cents, the lowest since Jan. 31.

Russian troops entered Ossetia in what it said was a response to Georgia's assault on Russian citizens. Georgia withdrew its troops from South Ossetia yesterday after Georgian casualties rose ``into the hundreds,'' Interior Ministry spokesman Shota Utiashvili said.

Russian officials confirmed the withdrawal and put the South Ossetian death toll at more than 2,000, many of them Russian citizens. Most residents of South Ossetia hold Russian passports.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net