September 18, 2012 / 5:50 PM / 5 years ago

FOREX-Euro drops from 4-month high on Spain uncertainty

* Spanish yields trade near 6 pct
    * German ZEW slightly better than expected
    * Speculation BOJ may ease policy weighs on yen

    NEW YORK, Sept 18 (Reuters) - The euro fell against the
dollar for a second straight day on Tuesday as some investors
bet that the currency had risen too far, too fast a day after it
touched a four-month high, given a renewed focus on debt-laden
    Pressure is growing on Spain to request aid and trigger a
European Central Bank bond-buying program seen as inevitable to
help the country finance its debts, with benchmark 10-year
Spanish bond yields rising to just over 6 percent.
    Spain's deputy prime minister, Soraya Saenz de Santamaria,
said on Tuesday the government was still considering the terms
of a European bailout, a condition of ECB help. The remarks
weighed further on investors'
    The euro has risen some 8 percent since hitting a two-year
low around $1.2040 in July, fueled by aggressive central bank
actions in both Europe and the United States to help their
struggling economies. That euphoria, however, is starting to
wear off.
    Even if Spain does request assistance, analysts say doing so
may not be a positive sign for the euro as the tough spending
cuts that come with the aid would put further pressure on an
economy already in recession.
    "You are looking at a Spanish economy that has 25 percent
unemployment and a huge overhang of residential mortgages. Even
if you write a lot of those down, you are still talking about
fiscal austerity, so you can't grow your way out of arguably a
recession," said Lane Newman, director of foreign exchange
trading at ING Capital Markets in New York.
    The euro fell 0.6 percent to $1.3038, with traders
reporting selling by Europeans. It hit a high of $1.3169 on
Reuters data on Monday, the highest level since May 4. Option
barriers were seen around $1.32. 
    The single currency failed to react to a slightly
better-than-expected German ZEW survey of analyst and investor
sentiment showing a rise in September after four months of
    The euro fell 0.7 percent against the yen to trade at 102.53
yen, having rallied to a four-month high on Monday.
    The dollar slipped 0.1 percent to 78.64 yen, having
risen as high as 78.92 yen on Monday on buying by speculative
accounts such as hedge funds, traders said. It hit a seven-month
low of 77.11 yen last Thursday. 
    Speculation is growing that the Bank of Japan might loosen
policy following a policy meeting on Wednesday after the U.S.
Federal Reserve launched a fresh round of monetary stimulus last
    "We expect the Bank of Japan to increase its asset buying
fund by 5 trillion yen ($63 billion). If it does, the dollar
might have a chance to break resistance around 79.50 yen.
Alternatively, if it doesn't, the dollar will fall below 78
yen," said Osamu Takashima, chief Japan FX strategist at
Citibank in Tokyo. 
    The Australian dollar slipped 0.3 percent to $1.0438,
pressured by worries that slower growth in China would put the
brakes on Australia's mining boom.
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