June 5, 2012 / 8:52 PM / 5 years ago

FOREX-Euro falls as Spain fears rise, G7 takes no action

 * Euro falls, erasing earlier gains as Spain worries grow
 * Spain's Montoro says financial markets closing to Spain
 * Focus turns to ECB and Fed meeting

 (Updates prices, adds quotes)	
 By Julie Haviv	
 NEW YORK, June 5 (Reuters) - The euro dropped against the
dollar on Tuesday as fears over Spain escalated after the
country warned about its access to credit markets and a meeting
of Group of Seven finance chiefs offered no action to assuage
investors.	
 Spain's treasury minister, Cristobal Montoro, said that at
current interest rates, financial markets were effectively shut
to Spain. The news on Spain, the euro zone's fourth biggest
economy, eclipsed the worries over Greece ahead of new elections
there later this month.  	
 The euro, which rallied on Monday on optimism the G7 meeting
would introduce fresh measures, fell broadly after the G7
ministers failed to unveil concrete actions to address the
problems in Spain and Greece. 	
 "The need for Spanish banks to be recapitalized has taken
precedent over the Greek (election) outcome," said Chris
Fernandes, vice president, senior foreign exchange adviser for
the capital markets division at Bank of the West in San Ramon,
California.	
 Tuesday's G7 talks prompted some market players to speculate
that the European Central Bank could opt for some form of
further monetary stimulus when it meets on Wednesday. A recent
Reuters poll showed only 11 out of 73 analysts polled expected a
move this month. 	
 Fernandes said euro/dollar should remain under pressure over
the next month until the Greek elections on June 17, the
scheduled meetings of the European Union finance ministers on
June 21-22 and a meeting of EU leaders on June 29-30. 	
 "However, due to the current extreme levels of speculative
short euro positions in the markets, there will be sharp
rebounds from time to time as traders book their profits and
look for perhaps higher levels to sell the euro/dollar."	
 The single currency was last down 0.4 percent at
$1.2452, well above Friday's two-year low of $1.2286, using
Reuters data.	
 "People will be happy to sell into moves above $1.25," said
Anders Soderberg, currency strategist at SEB in Stockholm.	
 The euro has recovered somewhat against the dollar since
weak U.S. jobs data on Friday fed speculation about the
prospects for further monetary easing by the U.S. Federal
Reserve. Soderberg, however, said the move in the euro was
merely "a short-term break in what now seems to be a
well-established downtrend.	
 	
 Fernandes, who helps oversee the $10 billion in assets under
management at Bank of the West's capital markets division's,
which includes currencies, said his anticipated downside target
for the EUR/USD is just below $1.2200.	
 "But I don't see it going much lower than that in the
interim, due to stretched market positions and the possibility
of a rumored 'grand plan' for the euro zone, which would address
the immediate banking crisis in Spain and perhaps also provide
some more measures aimed at fiscal consolidation."         	
 Against the yen, the euro was last up 0.2 percent at 98.04
yen, above Friday's low of 95.57 yen, using Reuters
data, the lowest since December 2000.	
 After this week's ECB meeting, markets will shift focus to
testimony on Thursday by Fed Chairman Ben Bernanke before the
U.S. Congress. Traders will look for any hints on the
possibility of more quantitative easing, a negative for the
dollar.	
 The dollar got a boost after Japan's finance minister, Jun
Azumi, said a strong yen is damaging Japan's economy.
 	
 The dollar was up 0.5 percent at 78.74 yen, above Friday's
3-1/2-month low of 77.65 yen, according to Reuters data. 	
	
 (Additional reporting by Nick Olivari; Editing by Leslie Adler)	
 	
 

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