Euro Reaches 13-Month Low as Credit Crisis Spreads to Europe

By Stanley White and Candice Zachariahs

Oct. 6 (Bloomberg) -- The euro slid to a 13-month low against the dollar as European governments rushed to support financial institutions in the region hit by the widening global credit crisis.

The 15-nation currency also fell to the lowest in more than two years versus the yen as German Chancellor Angela Merkel said the government will guarantee personal bank deposits to shore up confidence in the banking system. Germany, the euro region's largest economy, will also join with banks and insurers to bail- out property lender Hypo Real Estate Holding AG, while Belgium announced a deal to rescue Fortis, the largest Belgian financial-services firm after an earlier rescue failed.

``Everything coming out has been fairly euro-negative,'' said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland. ``The euro zone is the second domino of the globe to be falling over after the U.S.''

The euro declined to $1.3670 at 8:15 a.m. in Tokyo from $1.3772 late in New York on Oct. 3. It earlier reached 1.3617, the lowest since Sept. 5, 2007. The euro fell to 142.65 yen, the weakest since May 22, 2006, and traded at 143.29 yen from 145.11 yen. The dollar bought 104.88 yen from 105.32 yen.

The German government and the country's banks and insurers agreed on a 50 billion euro ($68 billion) rescue package for commercial property lender Hypo Real Estate Holding AG after an earlier bailout faltered.

European Bailouts

BNP Paribas SA, France's biggest bank, will take control of Fortis's units in Belgium after a government rescue of the Brussels and Amsterdam-based company failed. BNP Paribas will buy 75 percent of Fortis Bank Belgium from the government for 8.25 billion euros ($11.3 billion) in stock, and purchase the company's Belgian insurance operations, Prime Minister Yves Leterme told reporters.

The U.S. Congress on Oct. 3 passed a financial-market bailout designed to unlock credit markets. The bill authorizes the government to spend as much as $700 billion buying troubled assets from financial institutions reeling from record home foreclosures.

The yen rose to 80.07 per Australian dollar from 81.48 late in New York on Oct. 3. It also advanced to 68.72 versus the New Zealand dollar from 69.76

Japan's currency was the best-performer in September and the only currency to appreciate against the dollar as credit market collapse that drove Lehman Brothers Holdings Inc. into bankruptcy and sent bank borrowing costs in Europe to record highs makes the yen unbeatable.

Unbeatable Yen

Deutsche Bank AG, the biggest trader of foreign exchange, says the yen will rise 5 percent in coming months. New York- based Morgan Stanley is telling clients to buy the currency versus the euro and pound.

After seven years of providing the cheapest source of funds for investors buying higher-yielding New Zealand dollars, Australian dollars and Brazil reals, the yen is appreciating as $587 billion of subprime mortgage-related losses force banks to restrict credit. It strengthened 4.4 percent on a trade weighted basis in September, according to the Bank of Japan's effective exchange rate, the most since August 2007, when the seizure in capital markets began.

``We are in a multi-year trend reversal,'' said Paresh Upadhyaya, a senior vice president at Putnam Investment LLC in Boston who helps manage $50 billion in currency assets. ``We are going to see a global central bank easing cycle. The yen is the place to be in this environment of economic slowdown and heightened volatility.''

Futures traders increased their bets that the yen will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop -- so-called net longs -- was 43,022 on Sep. 30, compared with net longs of 31,939 a week earlier.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net