FOREX-Euro falters for 3rd straight day on debt fears

* Worries on Ireland, Portugal debt mount, knocking euro

* Dollar dips below 81.00 yen but recovers

* Risk trade may face reversal as year winds down
(Updates prices, adds comment, changes byline)

By Julie Haviv

NEW YORK, Nov 9 (BestGrowthStock) – The euro lost value against the
U.S. dollar for a third straight session on Tuesday as debt
risks grew in the periphery of the euro zone, spilling over
into foreign exchange market (Read more about international currency trading. )s and driving up the greenback.

The euro gyrated between gains and losses as investors
worried about Irish and Portuguese debt and continued to hedge
sizable bets against the U.S. dollar. Widening government bond
spreads relative to bunds in the peripheral euro-area continued
to weigh on the single European currency.

“The problems in the euro zone that emerged this past
spring were never really addressed, and now they are coming
back to the surface,” said Marc Chandler, global head of
currency strategy at Brown Brothers Harriman in New York.

“The foreign exchange market (Read more about international currency trading. ) is only capable of focusing on
one thing at a time,” he said. “So during the time when the
focus was on the U.S. and Fed easing, problems were already
smoldering in Europe.”

The euro last changed hands at $1.3835 (EUR=: ), down 0.6
percent. Traders said an earlier slide below the 76.4 percent
retracement of a recent rally that peaked last week near $1.43
suggested it could fall as far as $1.3697 in the days ahead.

Chandler said the euro will remain under pressure and
expects it to end the year in the $1.33 area.

The euro hit its recent high after the U.S. Federal Reserve
said it would buy $600 billion of Treasuries by mid-2011 to
lower interest rates and reinvigorate a sluggish U.S. economy.

The cost of protecting government debt against default in
Ireland and Portugal has risen in the past week, although it
eased ahead of a Portuguese bond auction. For details, see
[ID:nLDE6A8169]

Irish debt came under pressure this week on fear the
government won’t be able to cut spending as much as planned
next year, which could complicate efforts to sell fresh debt.

For a column on euro zone debt see [ID:nLDE6A71VY]

A Chinese credit rating agency Tuesday cut its rating on
the United States, citing doubts about the U.S. ability to
repay its debts, though the move had little impact on the
dollar. The major ratings agencies still give the United States
the top rating of AAA, although some have warned about
pressures from the rising debt burden on the rating’s
longer-term outlook.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Greek, Irish bond yield spread http://r.reuters.com/tuk54q

G20 battle lines: http://r.reuters.com/jux34q

Gold price performance: http://link.reuters.com/juz44q

Trade, currency tensions simmer pre-G20 [ID:nSGE6A801L]

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

RISK TRADE GETTING LONG IN THE TOOTH

The euro was little changed at 112.92 yen (EURJPY=: ) while
the dollar rose 0.7 percent to 81.69 yen (JPY=: ).

Traders said rising U.S. bond yields helped lift the
dollar/yen. The U.S. 30-year Treasury bond yield rose above its
200-day moving average of 4.20 percent for the first time since
May. [ID:nNYD003725]

Sterling also fell 0.7 percent to $1.6023 (GBP=D4: ), with
traders citing heavy selling from “a U.S. investment house,”
while the Australian dollar was down 0.5 percent at $1.0074
(AUD=D4: ), still near a 28-year high at $1.0183.

Low interest rates in developed countries have stoked
demand for higher-yielding currencies and assets from
fast-growing emerging market economies.

Emerging governments say this causes inflation in their
economies, and some have tried to stem foreign money inflows.

Analysts said that means investors should be wary of a
sudden pullback in high-yielding emerging market assets.

Traders said some macro accounts and commodity trading
advisers, who are short-term players, were already closing
their long euro and short dollar forward and futures positions
ahead of their book closing at the end of this month or next.

Such a pullback in risk occurred last November, and
Citigroup technical strategists said the a similar “momentum
divergence” on dollar index (Read more about the global trade. ) charts suggests a rerun of that
move may be in store.

The dollar index (Read more about the global trade. ) (.DXY: ) was up 0.6 percent Tuesday at
77.475, but Citi said charts are “highlighting the risk of a
bounce, possibly as far as 79.31, the 200-day moving average.”
(Additional reporting by Steven C. Johnson in New York;
Editing by Padraic Cassidy)

FOREX-Euro falters for 3rd straight day on debt fears