June 15, 2011 / 5:55 AM / 6 years ago

CORRECTED-FOREX-Euro drops as Greece wrangling sours mood

(Corrects paragraph 10 to show EUR/CHF hit record low on Monday, not Friday)

* Moody's places French bank ratings under review, dragging on euro

* FT story on cost of Greek bailout adds to pressure on single currency

* EUR/USD risk reversals at 6-mth high as hedge funds short euro

* Aussie jumps after rate comment by RBA, strong vs NZD

* USD/JPY stuck in narrow range

By Antoni Slodkowski

TOKYO, June 15 (Reuters) - The euro came under renewed pressure on Wednesday as markets refocused on the euro zone's debt problems after Moody's threatened large French banks with possible downgrades, while hedge funds bet on further drops in the currency.

The step, which prompted a move away from riskier assets, helping gold extend gains on Wednesday, came after euro zone ministers on Tuesday failed to agree on how private holders of Greek debt should share the cost of a new bailout.

Moody's will review the ratings of BNP Paribas SA, France's biggest bank, and its peers Societe Generale SA and Credit Agricole SA, focusing on their holdings of Greek public and private debt. .

The single currency was also hurt by the Financial Times saying the German-inspired Greek debt rescheduling plan could force euro zone governments to provide up to an extra 20 billion euro. The currency earlier came under pressure having failed to break through $1.4500 .

"The problem is not the fact that Greece is likely to face some form of a default. The problem is that the debate over the involvement of private investors in the rescue scheme drags on, making market participants jittery," said Teppei Ino, a currency analyst at Bank of Tokyo-Mitsubishi UFJ.

The lack of agreement on Tuesday means that discussion among EU leaders will continue on Sunday, before the June 23-24 EU summit, where the block must forge a compromise to avert financial disaster for Greece.

"As the debate drags on, moves like the one by Moody's today are only going to make market players more jittery," Ino said.

"Today's actions reflect Moody's concerns about these banks' exposures to the Greek economy, either through direct holdings of government bonds or credit extended to the Greek private sector," Moody's said in a note.

The euro was down 0.2 percent at $1.4414 after reaching an Asian session high of 1.4451 on EBS early on Wednesday after better-than-expected U.S. retail sales and Chinese inflation data boosted risk appetite the day before.

The euro briefly dipped below support at $1.4410 and decent support now is seen at 1.4375, with traders talking about good size stops at 1.4350. It also inched back towards a record low against the Swiss franc hit on Monday below 1.2.


The continuing debate over Greece's rescue prompted hedge funds to bolster bearish bets on the single currency via put options, as they expected more negative headlines on the country in coming days.

Euro/dollar one month risk reversals -- which reflect how much the market is leaning towards being bullish or bearish in the options market -- are favouring euro puts at 2.25 percent , holding near 6-mth highs.

"They have been buying substantial amounts of long-term euro put options," a trader at a Japanese bank said, adding that strikes are at around $1.40 with tenors of 1 to 2 months.

"Funds seem to be positioning to buy back the greenback," he said.

The dollar index , which tracks its performance against a basket of major currencies, retreated from a two-week high near 75.000. It last traded at 74.51.

The U.S. government is also struggling with debt problems of its own, and the head of the U.S. Federal Reserve warned it must lift its borrowing limit or risk a potentially disastrous loss of confidence.

Ben Bernanke said the United States could lose its coveted AAA credit rating and the dollar's special status as a reserve currency could be damaged if there was no quick resolution to the political battle over raising the $14.3 trillion debt limit.

The greenback bought 80.50 yen , still well within the prevailing 79.50-81.00 yen range, where the pair seems to have stabilised after falling from an April peak around 85.50.


The Australian dollar briefly popped above $1.0700 after the Reserve Bank of Australia governor said an increase in interest rates is still likely to be needed to restrain inflation.

It hit a session high of $1.0715 after the comments, up from around $1.0670, failing to breach trendline resistance at the level, which coincides with a 76.4 percent retracement of its June 3-13 fall and is close to the top of the Ichimoku cloud. A break above that would bring the June 3 high of $1.0775 into view.

The Aussie also gained 0.5 percent against the New Zealand dollar, rising to NZ$1.3130 , as the kiwi keeps underperforming following the Christchurch quakes earlier this week, which helped spark a reversal in the pair's slide.

NZ$1.3095 -- a 76.4 percent retracement of a short-term drop from above 1.3160 -- becomes the pair's immediate support level, after it was pierced earlier in the session. (Additional reporting by Ian Chua and Wayne Cole in Sydney, Eric Burroughs and Chikafumi Hodo in Tokyo, FX analyst Krishna Kumar; Editing by Joseph Radford)

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