FOREX-Euro falls as Spanish debt worries resurface

Fri Apr 13, 2012 3:48pm EDT

* Spanish banks' reliance on ECB stokes fears on debt crisis
    * Disappointing China GDP weighs on risk sentiment
    * Euro off for second week against dollar, yen

    By Luciana Lopez 
    NEW YORK, April 13 (Reuters) - The euro fell on Friday,
sliding for a second straight week against the dollar and the
yen as rising Spanish borrowing costs spooked investors already
reluctant to hold the single currency over the weekend. 
    Investors reaced to news that Spain's banks are virtually
locked out of credit markets and relied heavily on cheap loans
from the European Central Bank in March, and the cost of credit
default swaps on Spanish debt to a record high.
   
    The worries over Europe's lingering debt crisis fed anxiety
over the global economy after data showed China's economy grew
less than expected in the first quarter.  
    "We're going into the weekend with market players averse to
holding euros," said Michael Woolfolk, senior forex strategist
with BNY Mellon in New York. "I think the way you play that is
you're either neutral or short euros over the weekend and you
see what next week brings." 
    The single currency has been mostly range-bound in recent
weeks as upcoming euro zone elections, including in Greece and
France, and mixed global economic data have kept investors in a
wait-and-see mode. 
    Among key data next week will be U.S. retail sales for
March, due on Monday, which could shed light on whether rising
gas prices are crimping consumer spending. 
    The euro fell 0.80 percent to $1.3080 on Friday,
eroding the slight advance versus the dollar previously seen for
the week. For week, the single currency was last off 0.15
percent against the greenback. 
    Against the yen, the euro was off 0.53 percent at 106.04 yen
, down 0.74 percent for the week. 
    "The euro zone situation is slowly flaring up again, and
that can have some people second-guessing how many euros they
want to hold," said Sean Incremona, an economist at 4cast Ltd in
New York. 
    The dollar's gains were broad-based, with the greenback 
rising 0.94 percent against the traditional safe-haven Swiss
franc to 0.9195 franc. Against the yen, the dollar was up
0.22 percent at 81.06 yen. 
     "We are seeing the traditional reaction in that stocks are
selling off, core bond markets are rallying, the dollar is
rallying and commodities are getting hit," said George Davis,
chief technical analyst at RBC Capital Markets in Toronto.  
    Investors could stay more pessimistic over the next few
weeks, he said. 
  
    Uncertainty about the euro, however, has fallen as reflected
in the options market, with three-month risk reversals in the
euro/dollar still biased for euro puts, trading at -2.1 vols
 on Thursday, but improving from -3.5 vols in
mid-February. 
     
    AUSSIE PRESSURED 
    The Australian dollar, which reacts strongly to Chinese data
because Australia's commodity-driver economy relies heavily on
Chinese demand, fell as low as US$1.0352. 
    The Aussie had gained 1.2 percent on Thursday on a
surprisingly strong local jobs report and solid bank lending
data from China. 
    "We view yesterday's strong Australian employment and
Chinese loan data as more important than the overnight Chinese
Q1 GDP release and hence see the overnight sell-off in AUD as
providing good levels to go long," Nomura analyst Geoff Kendrick
said in a note.