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FOREX-Euro dips on debt fears; S&P revises US outlook

Published 04/18/2011, 11:47 AM
Updated 04/18/2011, 11:52 AM
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* Euro slides on euro zone debt concerns

* S&P revises U.S. long-term ratings outlook to negative

* Newspaper says Greece asked IMF/EU to restructure debt

* Finnish vote result sparks uncertainty on Portugal (Adds quote, details; updates prices)

NEW YORK, April 18 (Reuters) - The euro slumped broadly on Monday, as concern increased that Greece will be forced to restructure its debt and uncertainty over a bailout for Portugal grew.

Rising risk aversion generally weighed on the single currency after Standard & Poor's, while affirming the 'AAA/A-1+' sovereign credit rating on the United States, revised their outlook on the long-term rating to negative from stable. For details, see [ID:nN18195555]

While the dollar fell against the yen hewing to the risk aversion theme, the impact on the euro was greater because Europe's problems are already manifest. While U.S. fiscal tensions are increasing, the U.S. is far from defaulting on its debt.

"The prospect of an actual default by the U.S. on debt issued in its own currency isn't a realistic worry, in a financial market that has a lot more real worries to deal with (including genuine euro zone default risks,)" said Avery Shenfeld, chief economist at CIBC World Markets in Toronto.

"We are less concerned over a downgrade to the outlook than we are about the growth implications of turning to fiscal belt tightening before the economy has self-sustaining momentum."

The euro was last trading down 1.7 percent at $1.4185, with the session low at $1.4155 -- a two-week low -- according to Reuters data. German government sources said they expected Greece will not make it through the summer without debt restructuring though Athens denied a debt rescheduling was imminent. [ID:nnLDE73H17X]

The euro's rise has stalled since it hit a 15-month high last week, though market players expect it to be supported by prospects of another rise in euro zone interest rates.

Earlier a Greek newspaper reported that Greece had told the IMF and the European Union earlier this month that it wants to restructure its debt, though it pared losses as a finance ministry source in Athens said the story was untrue. [ID:nLDE73H0DR]

Players also are watching Portugal's progress toward a bailout closely after strong gains in a weekend election by an anti-euro party in Finland that has vowed to veto its rescue package. [ID:nLDE73G0I2]

Analysts doubted the Finnish vote could do more than slow down a bailout, but the result of the vote added to negative euro sentiment, encouraging investors to cut long positions.

NEGATIVE OUTLOOK

Standard & Poor's cited huge budget deficits and rising government indebtedness as the reason for the U.S. outlook revision with the path to addressing those issues not being clear.

But "the dollar is still the safe haven of first and last resort, said Michael Woolfolk, senior strategist at BNY Mellon in New York.

The last time the U.S. was put on review for a possible downgrade was in January 1996 after Republicans refused to vote to increase the debt ceiling, said Kathy Lien, director of research at GFT in New York. However, this was extremely short-lived because the outlook was upgraded back to stable in March after the U.S. government raised the debt ceiling.

Moody's Investors Service said on Monday, Washington's debate over its budget is positive despite uncertainty over the outcome, as it is a potential change in the direction of fiscal policy but made no changes to its ratings or outlook. [ID:nNYE003008]

The euro fell its lowest in almost three weeks against the yen . It last traded at 116.45, down 2.7 percent.

Euro/yen fell below a cluster of support in the 119.20 yen to 119.30 yen area that coincides with some intraday lows hit earlier in April. A trader for a Japanese bank said the euro could drop toward 115 yen in the near term.

The dollar also hit its lowest in almost three weeks against the yen to around 82.16 yen , before recovering slightly to 82.34 yen, down 0.9 percent on the day.

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