* Euro losses accelerate after Dutch minister's comments
* Cyprus clinches last-ditch deal with international lenders
* Economic concerns to weigh on euro
* Yen drops vs US dollar ahead of BoJ meeting next week
By Julie Haviv
NEW YORK, March 25 The euro fell against U.S.
dollar and Japanese yen on Monday as brief enthusiasm brought on
by Cyprus' last-ditch deal with its international lenders
swiftly segued into broader fears about the region's banking
Euro losses sharply accelerated after Dutch finance minister
Jeroen Dijsselbloem, who heads the Eurogroup, told Reuters and
the Financial Times that the rescue program agreed for Cyprus
represents a new template for resolving euro zone banking
problems and other countries may have to restructure their
"The Cyprus deal removed some of the tail risk regarding a
messy default and exit from the euro zone, but a dangerous
precedent of seizing bank deposits was set and Dijsselbloem's
comments solidified concerns about future bailouts," said Omer
Esiner, chief market analyst at Commonwealth Foreign Exchange in
"A depositor in an Italian or Spanish bank right now is
likely to be reconsidering their capital allocations as well as
those with counter party risk in shaky euro zone countries," he
The euro was last down 0.8 percent at $1.2874, far
below a session high of $1.3048 set after the Cyprus deal was
struck and not far from a four-month low of $1.2843 set last
"In the coming weeks the key thing to watch will be capital
outflows out of Italy and Spain," Esiner said. "That should
severely complicate efforts by lawmakers and the European
Central Bank to get financial markets calm."
The euro has initially risen above the $1.30 level after
Cyprus struck a deal with lenders to shut down its
second-largest bank and inflict heavy losses on uninsured
depositors, including wealthy Russians, in return for a 10
billion euro ($13 billion) bailout.
Without a deal, Cyprus's banking system would have collapsed
and the country could have become the first to exit the euro
Although the Cyprus bailout relieved some of the anxiety in
markets and initially pushed the euro higher, analysts said the
deal could serve as a template for future bailouts in bigger
euro zone countries with struggling banking sectors.
"The critical issue remains that of precedent for larger
euro zone countries, and the way in which the Cyprus situation
has been managed does not seem to inspire a great deal of
confidence," said Ilya Spivak, currency strategist at DailyFX,
in New York.
"At best, depositors in Cypriot banking institutions now
have to contend with capital controls locking up their money. At
worst, they may lose as much as 40 percent of their holdings,"
The euro was last at 121.28 yen, down 1.2 percent
and well below the Asian session high of 123.85 yen.
"This raises an important question: Why should a depositor
in any Eurozone country similarly vulnerable to a banking crisis
expect to be unscathed if a Cyprus-like calamity were to befall
them," he said.
EURO TO STRUGGLE
Worries about an economic slowdown in the euro zone,
political uncertainty in Italy, and prospects of the ECB easing
monetary policy in coming months to support growth were also
expected to weigh on the euro.
Uncertainty over forming an Italian government could hamper
any substantial gains in the euro.
By contrast, evidence of sustained economic growth in the
United States was pushing interest rate differentials in favor
of U.S. dollar assets.
Data showed speculators increased their bets against the
euro while bets in favour of the dollar rose in the latest week
to their largest since the week of July 17.
The U.S. dollar was last up 0.3 percent at 94.18 yen,
according to Reuters data. The Japanese currency, which tends to
gain in times of financial stress. retreated broadly as worries
over Cyprus eased.
Market expectations that the Bank of Japan will unveil
aggressive monetary stimulus at its next policy meeting on April
3-4, the first under new BOJ Governor Haruhiko Kuroda, are seen
likely to support the dollar against the yen in the near term.