EU summit doubts keep euro near 2-week low

Tue Jun 26, 2012 8:07am EDT
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By Richard Hubbard

LONDON (Reuters) - Doubts that EU leaders can agree any effective action on the euro crisis at a summit this week kept the currency languishing close to a two-week low against the dollar on Tuesday and contributed to a near tripling of Spain's short-term borrowing costs.

Equity markets, however, staged fragile recoveries from Monday's sharp selloff with Europe's broad STOXX 600 index .STOXX gaining 0.1 percent and U.S. stock futures pointing to a rise on Wall Street. .N

Spain's formal request on Monday for European aid along with a mass downgrade by Moody's of 28 of its banks, plus news that Cyprus had become the fifth euro zone nation to request a bailout, kept the appetite for riskier assets low.

"There is increasing pessimism as to whether any degree of substantive action will be agreed at the summit," said Jeremy Stretch, head of currency strategy at CIBC. "The most encouraging thing is that no one has any expectations, but that's as good as it can get."

The euro was mostly flat against the dollar at $1.25 after falling to $1.2471 on Monday, its lowest since June 12. However, the common currency hit a two-week low against the yen and a near-four-week low against the British pound.

The two-day summit in Brussels on Thursday and Friday will be the 20th time European Union leaders have met on resolving a crisis that has spread across the euro zone since it began in Greece in early 2010.

Doubts about the outcome are being fed by Germany's resistance to the idea of common euro zone bonds, seen by many in the currency bloc as the best solution to ending the debt crisis and cementing the future of the currency.

German Chancellor Angela Merkel said on Monday that sharing the debt liability within the 17-nation euro zone would be "economically wrong and counterproductive".   Continued...

Tokyo Stock Exchange employees monitor the market at the bourse in Tokyo June 18, 2012. REUTERS/Yuriko Nakao