UPDATE 1-Germany's Merkel lashes out against speculators
* Merkel against speculation on high deficit countries in EMU
* Says "speculators are our adversaries"
* Says resolved to win battle against markets
* Renews calls for regulation of hedge funds
(Adds quotes, background)
By Sabine Siebold
BERLIN, May 6 (Reuters) - Financial markets are exaggerating tensions in the euro zone and need to be brought under control, German Chancellor Angela Merkel said on Thursday.
Merkel said politicians are resolved to fight speculation against euro zone members with higher budget deficits, adding that she intended to win the struggle.
"To some degree this is a battle between the politicians and the markets," she said in a speech in Berlin. "But I am firmly resolved -- and I think all of my colleagues are too -- to win this battle."
The euro tumbled to a 14-month low against the dollar on Thursday, reeling from mounting concern that Greece's debt crisis may spread to other euro zone states.
Euro zone countries and the IMF are ready to lend Greece 110 billion euros ($148 billion) over the next three years to help it finance itself while overhauling its bloated public finances.
But markets doubt Greece is determined enough to see through huge budget deficit cuts. Three people were killed in a fire in central Athens on Wednesday after protesters marching against austerity measures threw petrol bombs into a local bank branch.
Turning to hedge funds, long a target of Merkel's ire, the German chancellor said oversight rules would soon be in place.
"The fact that hedge funds are not regulated is a scandal," she said, adding that Britain had blocked previous efforts to do this. "However, this will certainly have taken place in Europe in three weeks," she said, without giving more details.
Speculation against Portugal was exaggerated, Merkel added, saying that it was time to give European Union institutions greater scope to look into national budgets.