Euro holds steady above lows after Spain downgrade

TOKYO (Reuters) - The euro stabilized against the dollar on Monday but remained under downward pressure after Fitch Ratings downgraded Spain’s credit rating, refueling concern about Europe’s debt woes hurting the global economy.

Investors may avoid building positions up as the United States and the UK are on holiday on Monday, though some month-end flows may be seen in the market, traders said.

The European single currency is on track for a hefty 7.7 percent decline against the dollar in May, in what would be its sixth straight monthly fall and the biggest percentage drop since January 2009.

“The market is susceptible to negative news and small rallies in the euro on short-covering don’t last for long,” said a trader at a Japanese bank.

“This jitteriness in the market is likely to continue for a while, and it is difficult to see a recovery in market sentiment as there are worries that further bad news about southern European countries may come out,” he said.

Fitch cut Spain’s credit rating by one notch to AA-plus on Friday, saying the country’s economic recovery will be “more muted” than the government forecast due to its austerity measures. The outlook on the new rating is stable.

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The euro was steady at $1.2282, staying above a four-year low of $1.2143 hit this month.

“The next 24-hours might put the recent euro low in play at $1.2143,” said a trader at a major Canadian bank.

A key support is seen around $1.2135, a 50 percent retracement of the 2000-08 advance.

Charts indicate a monthly close below $1.2135 would favor additional weakness with the next downside support seen near $1.1640 -- a trough hit in November 2005.

The euro was little changed at 111.88 yen, having fallen 0.7 percent on Friday.

The dollar was steady at 91.05 yen. Japanese exporters are expected to sell the greenback when it nears 91.50 yen, traders said.

Month-end flows may have some impact on dollar/yen toward the Tokyo fixing time (10 p.m. EDT) but the currency pair is basically seen staying around 91 yen, they said.

Market players are keeping an eye on Japan’s political turmoil after Japan’s tiny Social Democratic Party on Sunday left the ruling coalition ahead of an election, although its impact on the currency market so far is seen as limited.

Sterling stood at $1.4464 after a British treasury minister resigned on Saturday after revelations about his expenses, dealing a blow to the new coalition government.

Additional reporting by Anirban Nag in Sydney, Reuters FX analyst Krishna Kumar