Euro shaken by debt crisis; dollar benefits

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By Ian Chua

SYDNEY | Mon Jul 11, 2011 7:53pm EDT

(Reuters) - The euro struggled to find any friends in Asia on Tuesday, having hit a record low against the Swiss franc as doubts lingered even after European financial officials offered fresh steps to tackle the region's sovereign debt problems.
In a bid to stop financial contagion engulfing Italy and Spain, officials promised to provide cheaper loans, longer maturities and a more flexible rescue fund to help Greece and other EU debtors.
They declined to rule out the possibility of a selective default by Greece, a move officials said bolstered Germany's push to involve investors in easing Greece's debts despite the concerns of the European Central Bank.
European Union finance ministers meet later on Tuesday and are under the cost to soothe market nerves ahead of Thursday's Italian bond auctions. Italy is aiming to raise 7.75 billion euros in the debt market, according to estimates from Barclays Capital.
"All we have right now are headlines about possibilities. I don't think what we're seeing now in the market is going to stop until we see action. If it's aggressive enough and large enough, then it could possibly do the trick," said Michael Feroli, chief U.S. economist at JPMorgan in New York.
The euro was last at 1.1732 Swiss francs, having plumbed a record low around 1.1670 francs. Against the yen, it stood at 112.66, not far off a four-month low around 112.27 plumbed overnight.
Versus the dollar, the common currency hit a seven-week low around $1.3985 before recovering a bit of ground to last stand at $1.4030.
A break below the May trough of $1.3968 would take it back to lows not seen since mid-March. Support is seen around $1.3905/10, a level representing the 50 percent retracement of the January-May rally as well as the 200-day moving average.
Weakness in the euro helped push the dollar up against a basket of major currencies. The dollar index .DXY climbed to 76.156, the highest in seven weeks. It was last at 76.000.
The greenback also advanced against commodity currencies. The Australian dollar, for example, skidded to two-week lows around $1.0632, down some 1.5 percent from last week's highs near $1.0800.
"We are becoming cautious on the prospects for AUD due to the increasing evidence of a global slowdown," analysts at Societe Generale wrote in a note.
"In particular, the Chinese data over the weekend highlighting that it will be increasingly difficult for Chinese authorities to pilot a smooth landing of the Chinese economy. A deeper correction in risk cannot be ruled out..."
However, the looming threat of a U.S. debt default may check the greenback's gains. President Barack Obama and congressional leaders were in high-stakes talks to break the impasse over raising the debt ceiling by August 2. The White House says failure to do so could result in a default.
(Additional reporting by Julie Haviv in New York; Editing by Wayne Cole)