FOREX-Euro weak near 2-month lows on contagion fears

* Euro hits two-month low vs dollar and yen

* Focus on debt worries; Korea tensions fuel risk aversion

* Euro shrugs off record German Ifo; dlr index at 2-mth high

(Updates price, adds response to German bonds sale)

By Jessica Mortimer

LONDON, Nov 24 (BestGrowthStock) – The euro fell (Read more about the trembling euro. ) to a two-month low
against the dollar on Wednesday, extending its losses on
uncertainty over Ireland’s plans to tackle its debt problems and
fears the crisis could spread to other peripheral euro zone
countries.

Peripheral government bond yield spreads over Germany
widened, and a North Korean statement after Tuesday’s artillery
clash that the South’s action was driving the peninsula to the
brink of war [ID:nTOE6AN07C] prompted investors to seek
safe-haven currencies.

These factors lifted the dollar to a two-month high against
a currency basket, while the problems in the euro zone’s
periphery meant the euro quickly shrugged off a record high
German Ifo business climate index for November. [ID:nLDE6AN0KA]

Uncertainties remained over whether the crisis in Ireland
would be resolved, as the teetering government prepared to
release a four-year plan to save 15 billion euros as a condition
of an EU/IMF bailout. [ID:nLDE6AM25A] Standard and Poor’s cut
its sovereign rating on Ireland overnight. [ID:nSYU010701]

At the same time, worries intensified that the crisis could
spread to Portugal or even Spain. Not helping the euro’s cause
was a poor response to the sale of new 10-year bonds by Germany.
[ID:nLDE6AN0UJ]. Some traders said if investors were starting to
shun Bunds as well–considered a safe-haven asset–it was hard
to see how the euro would stabilise in the near term.

“The Ifo survey was very strong but it did nothing to lift
the euro, and the trend is clearly bearish into year-end,” said
Stephan Maier, currency strategist at Unicredit in Milan.

“Ireland will publish a four-year plan, but we don’t know
what will happen to the government afterwards with new elections
expected in January”.

The euro was down 0.2 percent at $1.3343 (EUR=: ), having hit
a two-month low of $1.3284 and broken below its 100-day moving
average — currently around $1.3297 — for the first time since
early September. It fell nearly 2 percent on Tuesday.

The euro may test $1.3232, the 61.8 percent retracement of
its August-November rally, before targeting $1.3000.

DOLLAR GAINS

The euro also fell to a two-month low against the yen
(EURJPY=R: ) and lost ground against the Swiss franc (EURCHF=: ),
with both currencies benefiting along with the dollar from
investors seeking safe haven-assets.

“The euro is very vulnerable due to the Irish crisis and
worries about whether Portugal will be next in line. These are
not things that will be solved today or tomorrow,” said Niels
Christensen, currency strategist at Nordea in Copenhagen.

The dollar index (Read more about the global trade. ) (.DXY: ) was up 0.08 percent at 79.739,
having hit a high of 79.995, its strongest in two months.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ TAKE A LOOK-Korea situation [ID:nKOREA] Risks to watch on Korean peninsula [ID:nRISKKR] Fed pondered radical policy steps [ID:nFEDAHEAD] TAKE A LOOK-Europe debt problems [ID:nLDE68T0MG] Multimedia on euro zone crisis http://link.reuters.com/kar27p ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Analysts said the euro zone worries eclipsed concerns about
tensions between North and South Korea, which most believed
would not escalate into something more serious.

The fact that other perceived higher-risk currencies such as
the Australian (AUD=D4: ) and New Zealand dollar (NZD=D4: ) rose on
the day against the U.S. dollar supported this view.

“The fact that the Australian dollar is still up means this
is predominantly a story of euro zone-specific worries weighing
on euro crosses,” Unicredit’s Maier said.

The Australian dollar was up 0.5 percent from late U.S.
levels at $0.9770, rebounding from a four-week low of $0.9708 on
buying by sovereign names.
(Additional reporting by Anirban Nag; Editing by Hugh Lawson)

FOREX-Euro weak near 2-month lows on contagion fears