* Euro falls on lower shares, global economy concerns
* Funding concerns rise, seen positive for dollar
* Europe shares fall 3 percent in early trade
By Naomi Tajitsu
LONDON, Aug 19 The euro fell broadly on Friday
on the back of a sell-off in European shares, after a raft of
weak U.S. economic data and concerns about European banks drove
investors away from stocks and into U.S. Treasuries.
The Swiss franc rose, benefiting from demand for currencies
perceived to offer a safe haven, although its gains were capped
by ongoing speculation Swiss authorities will again step in to
temper the currency's strength.
The dollar was also supported as demand for the world's most
liquid currency is expected to rise given growing signs that
financial institutions may be facing funding issues.
"Highly liquid currencies should do well over less liquid
ones if liquidity stress increases," said Kasper Kirkegaard,
currency strategist at Danske in Copenhagen.
He added: "We could be moving towards the point where the
market could start going long on the dollar again ... As long as
leading indicators point to a heightened risk of recession, we
could see the dollar supported."
Market participants said they expected currency movements to
become more volatile due to a lack of long-term buyers in the
The euro fell 0.4 percent on the day to a session low
of $1.4259, retreating from a session high of $1.4340.
The euro extended losses into a second session, pressured by
a 3 percent fall in European shares , which tracked
losses in global share markets after a dismal reading of U.S.
factory activity on Thursday heightened worries the economy is
on the rocks.
The euro's losses were accelerated after stop-loss orders
were triggered below $1.4280, but some market participants said
the single currency may find support at $1.42.
"Bids are now gathering on a $1.42 handle suggesting it's
not going to run away on the downside," CitiFX Wire said in a
The euro fell 1 percent on the day against the
Swiss franc to 1.1284 francs.
While concern about the global economic picture is expected
to keep demand intact for the franc, its upside may be limited
by the prospect the Swiss National Bank will act further to stop
a big rise in the currency.
The SNB has boosted franc liquidity in the past week or so
by increasing sight deposits and selling the franc via swaps on
the forward market.
Analysts said investors were becoming highly sensitive to
signs of funding strains, following news earlier in the week
that an unnamed euro zone bank had borrowed $500 million in
one-week funds from the European Central Bank.
That has sent interbank lending rates soaring with the USD
Libor/OIS spread blowing out to 19 basis points, the highest
level in 12 months. Three-month Libor also struck four-month
highs at 0.29778 percent.
Other signs of funding problems were highlighted by news the
Swiss National Bank had tapped its currency swap line with the
Federal Reserve in the past week. This was the first time the
Fed has provided liquidity to a foreign central bank since early
Broad dollar support pushed the U.S. currency up 0.3 percent
to 74.443 versus a currency basket , although it stayed
under selling pressure against the yen, which is also considered
a "safe-haven" currency.
The dollar slipped 0.4 percent to 76.37 yen, edging
closer to an all-time low of 76.25 yen and revving up
speculation that Japan may enter the market to stem its
Demand for safe-haven assets drove the 10-year U.S. Treasury
yield as low as 1.97 percent on Thursday, the lowest
on official records held by the Federal Reserve and the U.S.
Treasury. On Friday, the yield was at 2.039 percent.
(Additional reporting by Asia Forex Team; Editing by Catherine