Monday October 6, 2008 - 11:34:24 GMT
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Reuters - www.reuters.com
FOREX NEWS-Battered euro sinks, yen soars as crisis bites
* Euro hits 13-month low vs dlr, 2-1/2 yr trough vs yen
* Lack of coordinated European bank plan hits confidence
* European stock futures down 5 percent
* Yen soars across board, Aussie/yen sinks 5 pct
(Changes byline, adds quotes, updates prices)
By Veronica Brown
LONDON, Oct 6 (Reuters) - The euro was pummelled against
major currencies on Monday as concerns for European financial
sector health increased without signs of a coordinated policy
response, while the yen spiked as investors cut risk exposure.
Sentiment soured further against the euro after leaders of
Europe's four biggest economies decided against a coordinated
bailout plan at a weekend summit.
European banks have been hit hard by the fallout from a
crisis that began in the United States when the housing market
collapsed and bad mortgage debts multiplied.
With banking shares leading European share prices down a
massive 5 percent on the day, Sweden became the latest country
to act against the deepening crisis, with the government saying
it would expand bank deposit guarantees and the central bank
raising the amount of loans offered to banks.
It followed Germany's pledge on Sunday to guarantee private
deposit accounts, a move which spurred similar action by Austria
and Denmark. Ireland issued the first such guarantee last week,
prompting criticism of a fragmented European Union response.
"Foreign investors had a love affair with the euro zone up
until late last year. If you have an uncoordinated policy
response it gives even less reason to invest in the euro zone
and that is helping encourage these flows," said Chris Turner,
head of FX strategy at ING in London.
"At the same time the scramble for dollar funding is still
going on and that's giving the dollar a strong bid," he added.
At 1038 GMT, the euro was down 1.3 percent at $1.3583 after
sliding to its lowest since late August 2007 at $1.3542 <EUR=>
in early European trade -- leaving major technical support of
$1.3667 far behind.
Against the yen, the euro was down 3.5 percent at 139.82 yen
-- a 2-1/2-year low <EURJPY=> according to Reuters data. The
dollar was down 2 percent 103.10 yen <JPY=>.
European stock futures were down 5.2 percent at 1031.85, led
by the banking sector , while the UK FTSE 100 index was
down 5.4 percent at 4710.0 .FTSE.
The moves in Europe were in contrast to situation in the
United States, where the government's $700 billion bank rescue
plan was finally passed through congress on Friday.
"The Paulson plan may be flawed, but it at least underlined
that the drive for a solution to the problem is coming from the
United States, and that is where the capital is likely to flow
as a result, favouring the dollar," Daragh Maher, deputy head of
global FX strategy at Calyon, said in a research note.
The dollar was also helped by strong dollar demand as global
money markets remain frozen.
"The market is in an extreme state of paralysis," said
BTM-UFJ currency strategist Lee Hardman. "Global financial
institutions are increasingly forced to procure dollar in the
spot market and the dollar is rallying on the back of that."
More worries about the troubles plaguing the global
financial system prompted heavy selling of riskier positions in
carry trades and stocks.
The Australian dollar plunged more than 5 percent against
the yen at one point to a four-year low as investors were forced
to dump long-standing carry trades favouring higher-yielding
The bellwether of emerging market stress however was
Iceland, with the crown currency falling more than 7 percent to
a record low against the euro <EURISK=D3> as the country
scrambled to avoid full-blown financial meltdown after failing
to produce a stability plan at the weekend.
(Additional reporting by Tamawa Kadoya; Editing by
(Reporting by Veronica Brown)
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