* Geithner urges end to loose talk about euro break-up
* Bank of Portugal cites unreported debts at Madeira
* Funding strains ease after central banks move
NEW YORK, Sept 16 The euro dropped on Friday,
hurt by a spate of negative news out of Europe ranging from the
German chancellor's rejection of a euro zone bond to
unexpectedly low private participation in Greece's debt
Analysts, however, were unsure as to where the euro is
headed going into next week, seeing vulnerability in both
The weak trend could persist, some said, as no new policy
initiatives to deal with the euro zone debt crisis came out of
the European Union Finance Ministers' meeting on Friday.
On the other hand, other analysts said, it seemed all
efforts are being undertaken by individual euro zone
governments to ease the region's fiscal problems. The euro,
they argued, could stabilize next week and trade above the
seven-month lows beneath $1.35 hit on Monday.
"The market probably senses that even though there is no
comprehensive solution in the immediate offing, the risks that
had been factored in at the beginning of the week have not been
prevalent," said Bob Lynch, head of G10 FX strategy at HSBC in
Shares in BNP Paribas (BNPP.PA) and Credit Agricole
(CAGR.PA) slumped on Friday, with traders citing talk that
ratings agency Moody's could downgrade Italy after the market
close on Friday. BNP Paribas and Credit Agricole are the two
French banks most exposed to Italy.
The euro was last down 0.7 percent at $1.37851 EUR=EBS,
off a one-week peak of $1.39370 hit on Thursday but held above
a seven-month trough below $1.35 plumbed on Monday. The euro
has gained around 1.6 percent so far this week, its best weekly
performance since the week of July 24 on trading platform EBS.
It fell to a session low of $1.37530, with traders saying
it extended losses after stop-loss orders were triggered on the
break of $1.37700, with more stops at $1.37500.
German Chancellor Angela Merkel's reiteration on Friday of
her objection to the introduction of euro bonds, and an
unexpectedly low 75 percent participation in Greece's debt
initiative, below the 90 percent target, added pressure to the
euro. [ID:nB4E7K901L] [ID:nWEA4691].
U.S. Treasury Secretary Timothy Geithner is taking part
told EU finance ministers on Friday they should end loose talk
about a euro zone break-up and work more closely with the
European Central Bank to tackle the debt crisis.
The euro had hit a one-week high after a coordinated move
by central banks on Thursday to provide dollars. Funding
strains, evident through the cross currency basis swap market,
which had hit some euro zone banks, appeared to be easing.
The three-month euro/dollar cross currency basis swap
EURCBS3M=ICAP, or the relative premium for swapping euro
LIBOR for dollar LIBOR, tightened to minus 88 basis points on
Friday, a day after the central banks acted. It narrowed from
as wide as minus 115 basis points on Monday.
FED MEETING AHEAD
While investors remain wary of the euro, they are also
reluctant to take long positions in the dollar ahead of a
Federal Reserve meeting next week, where policymakers may flag
another round of quantitative easing to boost the economy.
That move should weigh on the dollar and help riskier
assets rally, although analysts said some market players
thought "Operation Twist" was the more likely outcome.
In such a scenario the Fed would buy longer-dated Treasury
bonds and sell shorter-dated ones to keep rates at the longer
end lower without expanding the balance sheet.
The ICE Futures' dollar index was last up 0.5 percent at
76.633 .DXY. Against the yen, the dollar was up 0.2 percent
at 76.870 yen JPY=EBS. The threat of Japanese intervention
has helped keep dollar/yen in a tight range and above its
all-time low of 75.94 yen.
(Reporting by Gertrude Chavez-Dreyfuss and Wanfeng Zhou;
Editing by Chizu Nomiyama )