May 23, 2012 / 3:27 AM / 7 years ago

FOREX-Euro nears 21-month low on Greek worries; Aussie falls

* Euro, Aussie suffer on renewed Greek exit fears

* USD shines as equities, risk currencies retreat

* Dollar index hits 20-month high, highest since Sept 2010

* Aussie dollar hits 6-month low, kiwi hits 5-mth trough

* Dollar/yen dips after BOJ holds off from easing (Adds comments, updates prices)

By Masayuki Kitano

SINGAPORE, May 23 (Reuters) - The euro edged ever closer to hitting a 21-month low on Wednesday while the safe haven dollar reached a 20-month peak against a basket of currencies on fears of a messy Greek exit from the euro zone.

The euro dipped to as low as around $1.2643, just barely above last week’s trough of $1.2642 and not far from its 2012 low of $1.2624 set in January. A drop below the January low would take the euro to its lowest level since August 2010.

The euro’s drop had accelerated the previous day after Dow Jones quoted former prime minister Lucas Papademos as saying Greece had no choice but to stick with a painful austerity program or face a damaging exit from the euro zone, a risk he said was unlikely to materialize but was real.

“The (Papademos) comments were like very strong poison, and the market got flung around by them,” said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

The dollar rose to as high as 81.830 against a basket of currencies, its highest level since September 2010, as investors shunned risk.

The euro later pared some of its losses and stood at $1.2677 , down 0.1 percent from late U.S. trade on Tuesday.

A clear breach of the January low could open the way for the euro to drop to $1.25, said Andrew Robinson, FX analyst for Saxo Capital Markets in Singapore.

“There may be some very minor support at the August 2010 low (of $1.2588) but generally, think most market players targeting $1.25,” Robinson said.

“The excessive euro short positions on IMM maybe a cause for concern in the background,” he said, referring to the record net short euro position held by currency speculators that suggests the euro could bounce if short-covering kicks in.

While there are some euro bids in the $1.2620 to $1.2600 area, the single currency is looking heavy, said a trader for a European bank in Singapore.

“I’m surprised that (the) Papademos comment had such an impact. He didn’t actually say much and I think his intention is to put pressure on the voters to vote for the pro-austerity parties,” the trader said.

“Even though I think it’s a bit overdone, I can’t go against this move at the moment,” he added.

The Australian dollar, usually seen as a proxy for global growth, was hit hard and touched a six-month low of $0.9742 . It later trimmed some of its losses, and was last down 0.3 percent at $0.9772.

The New Zealand dollar, another currency that often comes under pressure in times of market stress and when there is heightened uncertainty about the global economy, hit a five-month low of $0.7490.

BOJ STANDS PAT

The dollar sagged against the yen after the Bank of Japan kept its monetary policy unchanged.

While the decision was in line with the expectations of most market players, a small number of participants had been speculating the BOJ could follow up with new easing steps after its monetary easing in April.

The dollar dipped 0.4 percent versus the yen to 79.64 yen . The greenback had risen 0.8 percent against the yen on Tuesday as the yen retreated after Fitch downgraded Japan’s sovereign credit rating.

Since Japan’s government debt is largely funded by domestic investors, Fitch’s rating downgrade is unlikely to have a lasting impact on the yen, said Sumitomo Mitsui Banking Corporation’s Okagawa.

Bank of Japan data shows that domestic investors held 93 percent of government debt as of December.

Markets were also keeping an eye on an informal summit of European Union leaders late on Wednesday, where France will push a proposal for mutualising European debt to help restore market confidence. (Additional reporting by Ian Chua in Sydney, Antoni Slodkowski and Hideyuki Sano in Tokyo; Editing by Sanjeev Miglani)

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