FOREX-Euro slides on German sentiment survey, Spain eyed
* Euro falls after German Ifo disappoints * Uncertainty on Spain, Greece also undermines euro * Germany plays down ESM leveraging prospects * BoJ intervention on radar as dollar falls versus yen By Julie Haviv NEW YORK, Sept 24 (Reuters) - The euro dropped broadly on M onday as a disappointing survey of German business sentiment underscored global economic concerns and uncertainty over debt-burdened Spain had investors shunning riskier assets. The drop in German business sentiment for a fifth successive month in September to its lowest level since early 2010 fed fears that Germany, the strongest of Europe's economies, is succumbing to an economic downturn despite the European Central Bank's recently announced bond-buying plan. Spanish government bond yields rose on signs that Madrid is making slow progress toward asking for the international bailout that markets are anticipating. Italian yields also rose. Many market participants believe the euro is poised for a pullback after a sharp rally in recent weeks that took the common currency to a four-month high against the dollar at $1.3169 on Sept. 17. "We had multiple weeks of an impressive rally in equities, commodities and the euro, but they are all vulnerable here as investors pare back on their long positioning," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, D.C. "The German data undermined market sentiment, but there are mounting worries about Spain as well and whether or not they will request a bailout," he said. "Potential bickering between Spain and Germany about the conditions of a bailout will add to an increasingly uncertain outlook, which markets do not like." The euro hit a session low of $1.2889, its lowest since Sept. 13. It last traded at $1.2908, down 0.6 percent. Initial support is seen at $1.2905, the 23.6 percent retracement of the July to September rally, followed by its 200-day moving average, which comes in around $1.2828. Against the yen, the euro last traded at 100.54 yen , down 0.9 percent. The dollar also fell against the yen, trading at 77.92 yen , down 0.3 percent, according to Reuters data. The Munich-based Ifo think tank said its business climate index, based on a monthly survey of some 7,000 firms, fell to 101.4 in September from 102.3 in August. A Reuters poll of 45 economists had forecast a slight rise to 102.5. "The euro has fallen after the German Ifo numbers, but this has to be taken in the context as part of the survey was done before the German constitutional court ruling," said Chris Walker, currency strategist at UBS. Germany's constitutional court gave its approval on Sept. 12 for the euro zone's bailout fund, boosting the euro. Ifo economist Klaus Wohlrabe said 50 percent of the Ifo survey's responses were taken before the court's decision. "In the near term, what happens to the euro is very much contingent on when Spain applies for a bailout. So far they are resisting," Walker added. Madrid is expected to present its draft budget plan for 2013 later this week and announce new structural reforms, while the results of stress tests on the wobbly Spanish banking sector are also due. These could set the stage for a full-scale bailout. However, Economy Minister Luis de Guindos said on Saturday that Spain will not rush to seek external aid to finance its debt, and EU officials said they did not expect Prime Minister Mariano Rajoy to seek an assistance program before a regional election in his native Galicia on Oct. 21. Adding to pressure for Spain is the risk of a downgrade of its sovereign debt rating to junk status by ratings agency Moody's, which some expect this week, as well as a 27.5 billion euro refinancing hump at the end of next month. Meanwhile, an EU/IMF report on whether Greece's debt is manageable, originally expected next month, now looks set to be delayed until after Nov. 6. RESCUE FUND TALK Spiegel magazine reported that the euro zone wanted to leverage the rescue fund for a total capacity of more than 2 trillion euros. Germany played down the talk, but acknowledged discussions were under way in Brussels on giving the European Stability Mechanism certain instruments to lure private investors. Data on Friday from the U.S. derivatives watchdog CFTC showed that speculators' net euro short positions shrank to their lowest level since November, having fallen to just above one-third of the record peak reached in June. Risk aversion firmly favored the yen, but Japan might intervene in the market should the yen gain further, traders said. The Bank of Japan's easing last week is seen as paving the way for such a move.
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