March 10, 2011 / 7:14 PM / 8 years ago

FOREX-Euro struggles persist after Spain downgrade

* Euro falls as euro zone fiscal woes outweigh rate view

* Moody’s downgrades Spain; market fears Portugal bailout

* Chinese trade deficit hits Aussie; sterling falls on BOE (Updates with reports of Saudis dispersing protesters )

NEW YORK, March 10 (Reuters) - The euro fell on Thursday after a cut to Spain’s credit rating kept euro zone debt problems in focus and left the currency vulnerable to more downward pressure in the coming weeks.

Moody’s cut Spain’s credit rating to Aa2 from Aa1 with a negative outlook, though sovereign demand and technical support buffered the euro against more intraday losses. For more see [ID:nLDE7290HP].

It hit a session low beneath $1.38, though, after disappointing U.S. jobless claims and international trade data added to risk aversion by reminding investors of problems in the global economy. [ID:nN10212680] and [ID:nCAT005391]

“The sovereign debt crisis has always been there, but traders put it at the back their minds,” said Gareth Sylvester, senior currency strategist at San Francisco-based Klarity FX. “With the reemergence of concerns on sovereign debt, why expose yourself unnecessarily?”

The euro EUR=EBS last traded at $1.3800, down 0.8 percent and near a $1.3791 session low EUR=EBS. Its decline pushed it further from a recent four-month high of $1.4036 reached after European Central Bank President Jean-Claude Trichet hinted at an interest rate rise in the euro zone as soon as April.

Traders said Middle East and Asian sovereign accounts bought euros near the low, suggesting central bank demand would continue to underpin the currency.

“Our core view is unchanged: the euro should trend higher, interrupted by periods of sovereign-fear-induced weakness,” said Camilla Sutton, senior strategist at Scotia Capital in Toronto. “It should close this year at higher levels than it is currently trading and next year at still higher levels.”

Concern about Middle East unrest provided a brief bid to the Swiss franc after media reports suggested Saudi police may have fired on protesters. It was unclear whether live bullets were used. [ID:nLDE7292MV] The dollar was last trading at 0.9310 CHF= francs, above a 0.9277 session low.

CHINA TRADE SCARE; BOE STANDS PAT

Against the yen JPY=EBS, the dollar was last up 0.3 percent to 82.91 yen after climbing to its highest since Feb. 22.

The Australian dollar fell after data showed China swung to a surprise trade deficit in February of $7.3 billion, its largest in seven years. [ID:nTOE72903F]

The numbers stirred worries that China's growth could slow and affect countries such as Australia, which has benefited from China's expansion. The Aussie dollar was down around 0.9 percent at $1.0011 AUD=D4.

Sterling GBP=D4 traded 0.9 percent lower at $1.6064 after the Bank of England held interest rates at a record low of 0.5 percent, as widely expected.

ROCKY ROAD FOR EURO IN SHORT RUN

Technical analysts saw trendline support for the euro around $1.3775, drawn from lows in January and February, but a fall below that would open the door to more losses.

London-based UBS FX analyst Geoffrey Yu said the Spanish downgrade showed the euro zone’s debt crisis is far from over. He said risks also stem from Europe’s inability so far to agree on a framework for a debt rescue fund.

European leaders and finance ministers will meet at a euro zone summit on Friday to discuss tackling debt problems.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a graphic on the U.S. trade balance: r.reuters.com/rux48r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Nick Olivari and Steven C. Johnson; Additional reporting by Naomi Tajitsu in London; Editing by James Dalgleish)

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