Wednesday January 14, 2009 - 11:23:50 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro pares gains on concerns over econ, finances
* Euro pares gains on concerns over euro zone econ, finances
* Ireland denies seeking IMF help; says need to cut deficit
* Trade subdued ahead of ECB rate decision on Thursday
* Market watching U.S. Dec retail sales
(Adds comments, updates prices)
By Tamawa Desai
LONDON, Jan 14 (Reuters) - The euro pared earlier gains on
Wednesday as concerns mounted over the euro zone economy and the
state of its public finances, overriding earlier cautious
optimism that had prompted investors to buy the currency.
Data on Wednesday showed Germany's economy grew at its
slowest pace in three years in 2008. More pointedly, data showed
the euro zone's biggest economy had contracted by between 1.5
percent and 2.0 percent in the final three months of the year,
the largest fall since German reunification in 1990.
Sentiment over the euro was hurt further on reports Irish
Prime Minister Brian Cowen said IMF help may be needed if its
economic downturn worsens, although those comments were later
But Cowen told Irish broadcaster RTE in an interview he
endorsed the view of the country's unions that public finances
are unsustainable [ID:nDUB000777].
"Even with the denial, I think the markets are likely to
conclude that there's no smoke without fire," said Derek
Halpenny, European head of global currency research at BTM UFJ
"It's a well known fact that of any country within the euro
zone Ireland has the most fragile banking sector because of the
degree of leverage in the property market."
Markets were already jittery after Spain and Portugal this
week became the third and fourth euro zone countries since last
week to be warned by ratings agency Standard & Poor's that their
credit rating is under threat from the global financial crisis.
By 1030 GMT, the euro was up 0.3 percent at $1.3232, off
from a session high of $1.3335 <EUR=>. But that was still above
a one-month low of $1.3140 on trading platform EBS the previous
Further data on Wednesday showed euro zone industrial
production fell for the seventh straight month in November,
although by a smaller-than-expected 1.6 percent [ID:nLE557833]
"The euro zone is going to face its sternest test in 10
years," said Chris Turner, chief currency strategist
"We are seeing some independent euro weakness, given the
severity of the slowdown and concerns about finances given
recent news on credit ratings."
The euro had risen in early European hours as extreme risk
aversion receded and European shares opened higher after a
rebound in Asia and as Wall Street pared most intraday losses.
That was a sharp reversal from the previous day, where the
euro and other higher-yielding currencies were hit as investors
sought perceived safer currencies such as the dollar and yen.
"It's still about equity markets," said Christian Lawrence,
currency strategist at RBC Capital Markets, adding that moves
will likely be subdued ahead of the ECB's decision on Thursday.
The ECB is widely expected to cut rates by 50 basis points
from the current 2.5 percent to help fight a broad economic
After opening higher, European shares were down by more than
one percent by mid-morning trade .FTEU3
Meanwhile, sterling got a boost, hitting a session high of
$1.4708 <GBP=>, after the British government launched a scheme
to help cash-strapped small firms. [ID:nLE203734]
The Australian dollar also rebounded from one-month lows hit
on Tuesday, rising more than two percent to $0.6769 <AUD=>.
The dollar was up 0.1 percent against the yen at 89.29 yen
Investors are watching U.S. December retail sales, which
will reflect the critical Christmas shopping season. Retail
sales, due out at 1330 GMT, are expected to fall 1.2 percent to
mark a sixth straight monthly drop after a 1.8 percent decline
in the previous month.
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