* Pounds falls 0.8 percent vs broadly higher dollar
* Short selling ban fuels demand for safe havens
* Concerns over Spain, Greece fuel save haven demand
By Michael Szabo
LONDON, July 23 Sterling touched a week-low
against the dollar on Monday, pulled down by weakness in
euro/dollar as worries over Spain and Greece's debt problems
drove investors to seek sanctuary in the greenback and avoid
perceived riskier currencies.
The pound dropped further after Spain and Italy announced
bans on short selling of financial stocks, aimed at discouraging
speculative trading that could weigh on the countries' banks and
The ban "has contributed to a further flow of capital to
both the dollar and the yen," said Michael Derks, chief
strategist at FxPro, who said the move added to concerns that
the situation in the euro zone was deteriorating.
Sterling lost 0.8 percent to hit a session low of
$1.5486 against the dollar, the lowest level in a week.
Spain's borrowing costs jumped to euro-era highs on Monday
on media reports that six more of the country's regions could
follow in Valencia's footsteps and seek central government aid.
Greek Prime Minister Antonis Samaras said the country was in
a 1930s-style "Great Depression", while investors were also
worried about Greece's future in the euro zone following a
report in German magazine "Der Spiegel" that the IMF may not
take part in any more financing for the country.
Those concerns eased slightly after the IMF said it would
start discussions with Greek authorities on July 24 on how to
get Greece's economic programme back on track.
The euro recovered from a near 3-1/2 year low of 77.62 pence
hit during Asian trade, to last trade up 0.3 percent
against sterling at 78.06 pence.
UK DATA WEAKNESS
The pound has benefited in recent months from being seen as
a safe-haven alternative to the euro despite the UK's own heavy
debt burden and strong financial ties to the euro zone.
But as yields on 10- and 30-year U.S. Treasuries hit record
lows, analysts said investors still preferred the traditional
safe havens of the dollar and Japanese yen, which both rose
against the pound.
Sterling dropped by more than 1 percent against a buoyant
yen to a seven-week low of 121.16 yen.
Some strategists said sterling could see further weakness if
preliminary second quarter UK GDP figures on Wednesday show a
0.2 percent quarter-on-quarter slide as expected, which would
extend the country's recession into a third quarter.
"We've seen some closing of short positions in euro/sterling
ahead of the figures but we may well see cable (dollar/sterling)
fall further as traders are potentially positioning for a worse
than expected number," said FxPro's Derks.
Even if GDP data does show the UK is still in recession,
some analysts said the impact on sterling may be limited.
In a note to clients, Commerzbank said investors are selling
the euro on every piece of negative euro zone news yet willfully
ignoring poor UK data, and highlighted worse-than-expected
retail sales for June and above-forecast public sector borrowing
figures released last week.
"The negative UK economic data is less of an issue right now
as people are focused on the euro zone," said Geoffrey Yu, FX
strategist at UBS.
(Reporting by Michael Szabo; Editing by Hugh Lawson)