May 24, 2012 / 3:55 AM / 6 years ago

FOREX-Euro stuck near 22-month low on Greek exit worry

* Fears of messy Greek exit from euro zone persist

* EU leaders offer no comfort

* Subdued reaction to decline in China factory activity in May

By Masayuki Kitano and Ian Chua

SINGAPORE/SYDNEY, May 24 (Reuters) - The euro hovered just above its 22-month low against the dollar on Thursday and remained vulnerable to further declines as the prospect of a Greek exit from the euro zone kept investors on tenterhooks.

The euro eased 0.1 percent to $1.2575. It fell to about $1.2545 the previous day, its lowest level since July 2010. That level should provide initial support, followed by $1.2500.

The euro drew little comfort from an informal summit of European Union leaders that shed no new light on how the euro zone nations intend to tackle its debt crisis, including the threat of Greece’s exit from euro.

“It’s still hard to see what the endgame will be like,” said a trader at a Japanese bank in Tokyo.

European Union leaders urged Greece to stay the course on austerity and complete the reforms demanded under its bailout programme.

Three officials told Reuters that members of the currency bloc have been warned to prepare contingency plans in case Greece quits the euro, an eventuality that the German central bank said would be testing, but “manageable”.

“With a Greek exit once again being discussed, the pressure on the euro should continue especially with the lack of clarity on any of the pressing issues,” analysts at BNP Paribas wrote in a client note.

“EUR weakness is likely to be amplified against the USD and the JPY as the market seeks refuge (in the safe-haven pair) as negative risk sentiment persists.”

The next major support level for the euro is seen at $1.2500, although some market players say the single currency is at risk of an even steeper drop.

Daisuke Karakama, market economist at Mizuho Corporate Bank in Tokyo, said the euro may drop to $1.20 by the end of June.

The $1.20 level is key for the euro because the $1.20 to $1.22 range is seen as being roughly consistent with purchasing power parity, Karakama said.

In the past, there have been cases where the euro’s falls versus the dollar have stalled near levels consistent with purchasing power parity, he added.

“One point to watch will be whether the euro can break below such levels,” Karakama said.

With the euro under pressure, the safe haven dollar held its ground. Against a basket of major currencies, the dollar stood at 82.085 . That was close to a peak of 82.221 hit on Wednesday, the dollar’s highest level since September 2010.

The dollar held steady against the yen at 79.49 yen.

Major currencies reacted little to data showing that China’s factories took a hit in May as export orders fell sharply.

The Australian dollar held steady on the day at $0.9750 , staying above a six-month low of $0.9690 hit on Wednesday.

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