Euro Falls for Second Day Versus Dollar on Greek Budget Concern

By Bo Nielsen

Jan. 6 (Bloomberg) -- The euro dropped against the dollar for a second day on speculation the European Union may be reluctant to help Greece and other nations bolster their finances.

The euro also weakened versus the pound after Italy’s Il Sole 24 Ore newspaper cited European Central Bank policy maker Juergen Stark as saying markets can’t assume other nations will bail out Greece. The yen fell against all 16 of its most-traded peers after rising stock markets and signs the global economy is improving spurred demand for higher-risk currencies.

There’s “fear that Greece will default and that other countries like Spain and Ireland will follow,” said Antje Praefcke, a currency analyst at Commerzbank AG in Frankfurt. “This means heightened uncertainty.”

The euro dropped to $1.4338 at 8:17 a.m. in London from $1.4365 in New York yesterday, and touched $1.4284 after Stark’s comments were reported. It traded at 132.01 yen, up from 131.75 yen. The dollar strengthened to 92.08 yen from 91.71 yen.

Greece’s plan to cut the European Union’s widest budget deficit, estimated at 12.7 percent of gross domestic product last year, will be scrutinized by EU officials in Athens today. The euro fell 4.6 percent versus the dollar in December as Greek bonds plunged and concern mounted that fiscal woes could also engulf Spain, Ireland and other euro-region members.

Stark, a member of the ECB’s executive board, said markets are “deluding themselves” if they think the EU will bail out Greece, according to Il Sole.

“The euro is falling on concern European nations face rating pressures,” said John Hydeskov, a currency analyst in Copenhagen at Danske Bank A/S. “Stark’s comments show ECB policy makers are taking the Greek debt issue seriously.”

Yen Drop

The yen fell 0.5 percent to 84.05 per Australian dollar as the MSCI Asia-Pacific Index of shares climbed 0.5 percent and the Nikkei 225 Stock Average advanced 0.5 percent, fanning the appetite for trades in higher-yielding assets funded in the currency. Europe’s Dow Jones Stoxx 600 Index rose 0.2 percent.

The Japanese currency also weakened after a report from Kyodo News said the government decided to accept the resignation of Finance Minister Hirohisa Fujii, an advocate of a stronger yen, on grounds of poor health. That report cited an unidentified ruling-party lawmaker.

“If his resignation leads to declines in the support rating for Prime Minister Yukio Hatoyama or triggers political confusion, it may become a negative factor for the yen,” said Koji Fukaya, a senior currency strategist in Tokyo at Deutsche Bank AG.

The dollar rose before two reports today that are expected to show an improving U.S. economy.

The Institute for Supply Management’s index of non- manufacturing businesses, which account for almost 90 percent of the economy, probably rose to 50.5 in December from 48.7 in November, according to a Bloomberg survey. Another report may indicate that companies cut the fewest jobs last month since January 2008, a separate survey showed.

To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net