* Euro hits lowest since Oct. 1, eyes key support at $1.28
* S&P's Spanish rating cut reminds risk of Moody's downgrade
* Aussie rebounds after Sept employment beats forecast
By Chikako Mogi
TOKYO, Oct 11 The euro fell on Thursday as
uncertainty over Spain's bailout prospects continued to spook
sentiment, while a drop in share markets due to worries about
slowing global growth further dented investor risk appetite.
The euro slipped after Standard & Poor's cut Spain's
sovereign credit rating to BBB-minus, just above junk status,
with a negative outlook reflecting its view that there are
significant risks to economic growth and budgetary performance,
as well as a lack of clear direction in euro zone policies.
S&P's two-notch downgrade from BBB-plus brings it in line
with a Baa3 rating by Moody's Investors Service, which has yet
to announce the result of its review on Spain, with the
potential for a possible downgrade.
Spain is holding off asking for external assistance, which
would if granted pave the way for the European Central Bank to
utilise its new scheme of buying bonds of struggling euro zone
states that ask for aid to help reduce their borrowing costs.
Investors widely expect some kind of aid package for Spain,
which has also applied for a euro zone bank rescue, as the
prolonged recession deepens the government's fiscal deficits.
But the prospect the euro zone's fourth-largest economy will
follow smaller peers - Greece, Portugal and Ireland - in asking
for lifelines by international lenders has instilled uneasiness.
"Given that the S&P still kept Spain's investment grade, the
reaction was much more than expected, suggesting how players
would rather enter the market short than long the euro," said
Kimihiko Tomita, head of foreign exchange for State Street
Global Markets in Tokyo.
"The market was waiting for fresh news with some weight to
push the euro lower as the currency has remained quite resilient
to negative news recently," Tomita said.
The euro slipped 0.2 percent to $1.2845, after
hitting its lowest since Oct. 1 of $1.2825. The currency is
under growing pressure and may test key technical support at its
200-day average of 1.2823, and the Oct. 1 low of $1.28035.
Asian equities were weighed by a drop in
global stock prices overnight as the International Monetary Fund
and the World Bank earlier this week provided a grim outlook for
global growth in 2012 and 2013, with warnings about a slowdown
in China, the world's No. 2 economy and the top consumer of raw
"With U.S. stocks falling, and IMF and World Bank raising
alarms about the Chinese growth slowdown, market sentiment is
against risk - and growth-sensitive or high-yielding currencies
are prone to downside risks," said Yuji Saito, director of
foreign exchange at Credit Agricole in Tokyo.
Saito said if the euro breaks below key technical support
around $1.28, it could easily drop 200 to 300 pips regardless of
whether there is news or data.
JOBS DATA LIFTS AUSSIE
The euro's weakness was magnified by a rebound in another
risk-sensitive currency, the Australian dollar.
The Australian dollar erased earlier losses on
short covering after the country's employment rose more than
expected by a seasonally adjusted 14,500 in September, while the
jobless rate also rose to 5.4 percent as more people joined the
The Aussie rose to a near one-week high of $1.0266, moving
away from its three-month low of $1.0149 hit on Monday, and also
regained against the yen to 80.06 yen from below 80
yen before the data.
"The Aussie is a risk currency, but there is an emerging
view recently that some investors may be preferring the
Australian dollar as a sort of reserve currency now that the
euro is clearly unstable. This may be one reason why the Aussie
has remained relatively resilient," said Tomita at State Street
The euro fell about 0.5 percent against the Aussie at
A$1.2514, its lowest since Oct. 2, and was down 0.3
percent against the Japanese yen at 100.25 yen.
The Japanese currency's strength against an overall weak
euro capped dollar/yen, which eased 0.1 percent to 78.07 yen
. But the pair's downside was also limited, with some
traders citing stop-loss orders placed around 78 yen.
Tomita said repeated remarks by Japanese authorities that a
strong yen is detrimental to the country's economy may turn
sentiment bearish towards the yen.
Heightening risk-aversion could prompt speculative plays on
the safe-haven dollar/yen as the Group of Seven finance
ministers is scheduled to meet in Tokyo on Thursday, Saito said.
The euro zone crisis, U.S. fiscal problems and a slowdown in
economic growth in China and other emerging countries are
expected to dominate the agenda of the G7 meeting on the
sidelines of separate meetings of the International Monetary
Fund and World Bank.