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Euro at 2-week low on Spanish worries

Wednesday, September 26 10:23:49

The euro hit a two-week low against the dollar today, dragged down by uncertainty over when Spain might request a bailout, and after anti-government protests in Madrid turned violent.

A Spanish request for external aid is a condition for the European Central Bank to start buying Spanish debt and Madrid's apparent reluctance to seek help has dented demand for the euro in recent sessions.

Spanish Prime Minister Mariano Rajoy told the Wall Street Journal in an interview published on Wednesday that he was ready to seek a bailout if its debt financing costs stayed too high for too long. The euro fell further after the Bank of Spain said gross domestic product kept falling at a "significant rate" in the third quarter of 2012.

It traded down 0.4 percent at $1.2848, its lowest since Sept. 12, having hit a four-month high of $1.31729 last week.

"The Spanish story does seem to be deteriorating. We are seeing Spanish bond yields pushing higher this morning and that's being echoed by a slightly lower euro," said Daragh Maher, currency strategist HSBC.

Protesters clashed with police in Madrid on Tuesday as the government prepared a new round of austerity measures for the 2013 budget, due on Thursday.

The unrest highlighted the challenges facing the euro zone's fourth largest economy as it struggles to bring its debt under control, and pushed 10-year Spanish yields back towards 6 percent. Strategists said profit-taking was also weighing on the single currency. The euro had rallied around 9 percent from a two-year low of $1.2042 hit in July, helped by the ECB bond-buying plan and a third round of monetary easing from the U.S. Federal Reserve that lifted perceived riskier currencies against the dollar.

"What we're seeing is a reversal of some excessive moves that we saw earlier," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore. (C ) Reuters