January 21, 2010 / 3:01 PM / 10 years ago

FOREX-Greece debt worries sink euro to near 6-month low

* Euro falls to $1.4028, lowest since late July

* Spreads widen on Greek, Spanish and Portuguese bonds

* Weak US jobless data helps euro pare losses

(Updates prices, adds comments, U.S. data, changes dateline, byline)

By Michael O’Boyle

NEW YORK, Jan 21 (Reuters) - The euro slumped to a nearly six-month-low on Thursday, pressured by concerns over a swelling budget deficit in Greece, sparking worries about debt also held by several other euro zone countries.

The dollar also hit a 4-1/2-month high against a currency basket, as investors perceived greater risk with Greek bonds as well as those of other euro zone countries struggling with large budget deficits like Portugal and Spain.

“The euro is very heavy. It’s not just Greece, but fears of contagion into the weaker euro zone,” said Win Thin, a currency strategist at Brown Brothers Harriman in New York.

After falling to its lowest since late July, the euro was down 0.1 percent on the day to $1.4101 according to Reuters data, paring its losses slightly after data showed U.S. jobless claims rose by more than expected in the latest week, raising some concern about the health of the U.S. job market.

“It’s a little concerning but all the data we’ve seen so far indicates that there is a recovery,” said Camilla Sutton, senior currency strategist, Scotia Capital, Toronto.

“I don’t think this would affect the dollar much because for now everybody wants to sell the euro.”

Broad yen weakness pushed the dollar 0.5 percent higher to 91.70 yen JPY=.

The dollar index .DXY also pared back to 78.53 after hitting 78.814, its highest since early September, and pushed above its 200-day moving average at 78.515 for the first time since May last year.

CHINA DATA

Worries over the fiscal health of some heavily-indebted euro zone states prompted investors to sell government bonds of Greece, Spain and Portugal in favor of benchmark German paper. [ID:nLDE60K0JU].

For a graphic on the euro and Greek bond spreads, click on

here

The premium investors demand to hold 10-year Greek government bonds over benchmark German Bunds rose to 311 basis points on Thursday, its widest since the country joined the euro in 2001.

Financial markets and credit rating agencies are deeply skeptical of Greece’s plans to cut its deficit from 12.7 percent of gross domestic product to below 3 percent by the end of 2012.

The euro was also under pressure after a flash reading of the composite Purchasing Managers’ Index for January fell, indicating slower expansion and boding poorly for a recovery in Europe’s public finances. [ID:nLAG006052]

“In Europe, it’s the Greek worries, but it’s also the soft euro zone PMIs that are undermining the real, fundamental euro zone outlook,” said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.

China’s economy grew 10.7 percent in the fourth quarter, bringing growth for the year to 8.7 percent. [ID:nTOE60K011]

That raised speculation of further tightening after recent steps by China’s central bank to rein in liquidity. On Thursday, it guided rates on 3-month bills higher.

The Australian dollar rose 0.4 percent to $0.9124 AUD=D4, after falling some 1.8 percent the previous day. (Additional reporting by Steven C. Johnson and Gertrude Chavez-Dreyfuss; editing by W Simon )

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