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Euro drops on poor business activity

Thursday, September 20 10:38:44

The euro fell to a one-week low against the dollar and dropped sharply against the safe-haven yen today after disappointing euro zone business activity data stoked concerns about a deepening recession in the region.

While German private sector contraction eased in September, based on the purchasing managers' index (PMI) numbers from China and Europe's second-largest economy France were weak. That drove some to shed holdings in riskier assets and currencies for safe-haven government bonds.

The focus turned to on a Spanish bond auction with pressure building on Europe's fourth-largest economy to seek financial aid. Ten-year Spanish borrowing costs briefly topped 6 percent this week and a bad result could hasten a request for a rescue package and provide some relief to the euro, some traders said.

Madrid will sell three-year and 10-year paper in an auction of up to 4.5 billion euros. It has been dithering on seeking a bailout that could allow the European Central Bank to buy its bonds. That uncertainty has seen the euro cede ground.

The euro fell 0.8 percent to $1.29415, off Monday's four-month peak of $1.3173. It dropped through stops at $1.2950, before recovering to trade at $1.2970, still down on the day. (C ) Reuters