* Euro rally from Friday's U.S. jobs data fades
* World Bank warns on China; Aussie dollar hits 3-month low
* Spain tops agenda as euro zone finance ministers meet
By Wanfeng Zhou
NEW YORK, Oct 8 The euro retreated from two-week
highs against the dollar and yen on Monday as worries about
Spain weighed even as euro zone officials gathered in Luxembourg
to launch the region's bailout fund.
Rising concern about the global economy after the World Bank
scaled back its forecast for East Asia and about corporate
earnings also drove investors into currencies perceived as safe
The euro had hit two-week highs on Friday after an
unexpected drop in the U.S. jobless rate sparked selling of less
risky assets such as the dollar and yen.
Euro zone finance ministers will formally launch the
region's 500-billion-euro bailout fund at a meeting on Monday,
which will bolster the region's defenses against the sovereign
The meeting comes as investors focused on whether and when
Spain will request aid as it struggles to manage its public
finances and recapitalize banks and ahead of a summit of EU
leaders on Oct. 18-19.
"The illiquidity in markets because of holidays in Japan and
North America is causing investors to scale back some of their
major positions from last week," said Ravi Bharadwaj, pricing
and market analyst at Western Union Business Solutions in
"We also have a euro zone finance ministers meeting today as
well as a smaller version of the EU summit next week, and I
think market participants don't have very high hopes about the
general outcomes from those meetings."
Investors were cautious as the third-quarter earnings season
gets under way and after the World Bank cut its growth forecasts
for the East Asia and Pacific region, warning a slowdown in
China could get worse.
The euro fell 0.5 percent to $1.2973, down
from Friday's two-week high of $1.3071 set on Reuters data.
Against the yen, it lost 1 percent to 101.48, retreating
from a high of 102.80 on Friday. Traders reported selling by a
U.S. investment bank, with a break through its 200-day moving
average around 101.75 yen accelerating the move.
"There is some general risk aversion stemming probably from
numerous reports that Q3 earnings reports will be poor," said
Rabobank analyst Jane Foley.
Some strategists said the potential for positive headlines
from this week's meetings of euro zone finance ministers and the
International Monetary Fund could provide a boost to the euro.
Morgan Stanley advised buying the euro at $1.2950, with a target
of $1.3400 and a stop at $1.2870.
The euro has climbed more than 7 percent since hitting a
two-year low of $1.2040 in late July, bolstered by hopes of
European Central Bank action to help quell the region's debt
The higher-yielding Australian dollar dropped to a
three-month low of $1.0149, before recovering to $1.0190, up 0.1
percent on the day. The Aussie dollar is particularly sensitive
to the outlook for Chinese growth.
The dollar fell 0.6 percent to 78.20 yen. It reached
a session peak of 78.87 yen on Friday, on Reuters data.
"The impression I get is just above 79 there's a lot of
sellers," said Mitul Kotecha, head of global foreign exchange
strategy for Credit Agricole in Hong Kong.
According to a business sentiment survey published by the
Bank of Japan last week, the average dollar/yen exchange rate
assumption that major Japanese manufacturers are using in their
business plans for the six months to March 2013 is 78.97 yen.
That suggests Japanese exporters may want to sell the dollar
if it rises beyond that threshold, although they are unlikely to
be active on Monday, with Japanese markets also closed for a