FOREX-Euro falls as Moody’s warns on Spain rating

* Euro falls after Moody’s puts Spain on review

* Euro debt worries lift Swiss franc to record vs euro

* Dollar gains ground as Treasury yields rise

(Updates prices; changes byline, dateline; previous TOKYO)

By Jessica Mortimer

LONDON, Dec 15 (BestGrowthStock) – The euro fell (Read more about the trembling euro. ) on Wednesday after
ratings agency Moody’s said it may downgrade Spain’s debt,
refocusing the market’s attention on the risks of contagion from
the euro zone crisis.

The Swiss franc hit a record high against the euro as
worries about debt problems in some European countries
encouraged investors to reduce exposure to riskier euro zone
assets and seek safer alternatives.

Contributing to the euro’s falls, the dollar gained broadly
as upbeat U.S. economic data lifted U.S. bond yields, which
enhanced the appeal of the greenback.

Moody’s put Spain’s Aa1 ratings on review for a possible
downgrade, citing concerns about its mounting debt and 2011
funding needs, though it did not believe Spain would need an EU
bailout, as Greece and Ireland have. [ID:nL3E6NF0D8]

“There is an unwillingness among investors to hold riskier
euro zone bonds over the year end so they are selling and going
into Swiss francs,” said Carl Hammer, currency strategist at SEB
in Stockholm.

He added that financial markets had not priced in the risk
of Spain needing financial aid, which left plenty of scope for
further falls in euro/dollar in the first half of 2011.

The euro was down 0.5 percent against the dollar at $1.3315
(EUR=: ), having dropped below $1.3300 to take it two cents below
a high of $1.3500 touched on Tuesday.

Against the Swiss franc (EURCHF=: ) the euro was down 0.5
percent at 1.2772 francs, having hit a low of 1.2761.

Chartists said that if the euro could hold above support in
a band above $1.3280, it could re-test $1.3500. But if that
support band gave way, the euro was likely to slip into a
$1.3165-1.3500 range before testing its November low at $1.2969.

The Moody’s report on Spain pushed Spanish bond yields
(ES10YT=RR: ) higher. [GVD/EUR]

The focus is likely to remain on debt problems in the euro
zone periphery, with Ireland’s parliament due to vote on an 85
billion euro EU/IMF rescue package on Wednesday, a debt auction
in Portugal and a planned strike in Greece. [ID:nLDE6BD1W1]

U.S. YIELDS

The dollar gained 0.3 percent against a basket of major
currencies to 79.603 (=USD: )(.DXY: ), climbing above a three-week
low of 78.819 plumbed on Tuesday.

The 10-year U.S. Treasury yield flew to a seven-month high
just above 3.50 percent in Asian trade, extending a move that
started on Tuesday after U.S. retail sales rose for a fifth
straight month in November. [ID:nN14261708]

Despite improving growth prospects, the Federal Reserve
reaffirmed its commitment to buy $600 billion in bonds, which
may boost the economy further. [ID:nN14232588]

“A sharp rise in U.S. Treasury yields is spurring
short-covering in the dollar,” said Shuichi Kanehira, head of FX
spot trading at Mizuho Corporate Bank. “In the short term the
dollar could advance further.”

The dollar rose 0.3 percent to 83.90 yen (JPY=: ), but
resistance was expected ahead of 84.50 yen. Support was pegged
around 82.50.

Peter Frank, strategist at Societe Generale, said dollar/yen
looked at risk of an upward lurch from widening U.S./Japan rate
spreads, particularly if there was more upbeat U.S. data ahead.

U.S. data on Wednesday includes November consumer prices.

The euro was steady against the Swedish crown at 9.0871
crowns (EURSEK=: ). The Swedish currency rose briefly after the
central bank raised interest rates as expected and raised its
rate forecast for the first quarter, though it said underlying
inflation pressures were still low. [ID:nSAT008971]

(Additional reporting by Tokyo Forex team)

FOREX-Euro falls as Moody’s warns on Spain rating