The euro touched the lowest in more than a decade versus the yenafter European governments signaled bondholders may have to takebigger losses on Greek debt, deepening concern the debt crisis willdamp recovery prospects.

The 17-nation currency reached an eight-month low versus thedollar as global stocks slumped. Russia's ruble fell for a fifthday versus the dollar on concern the euro-area debt crisis willhurt oil demand. The Australian dollar declined to the least inmore than a year versus the greenback after the Reserve Bank ofAustralia held its key rate at 4.75 percent.

“Central banks are now rebalancing their reserves and whereasearlier in the year that meant buying euros and non- dollarcurrencies, we're now in the reverse situation,” said Ray Attrill,a senior currency strategist at BNP Paribas SA in New York. “That'sprobably amplifying the pressures that are coming from safe-havenflows, which tend to support the dollar.”

The euro was at 101.32 yen at 8:49 a.m. in New York from 100.97yen yesterday. It dropped to as low as 100.76, the least since June2001. The common currency rose 0.2 percent to $1.3205, from$1.3176, after touching $1.3146, the weakest since Jan. 13. Theruble depreciated to 32.81 per dollar, from 32.57, bound for itsweakest close in more than two years. The Australian dollar slid0.8 percent to 94.49 U.S. cents. It fell to 94.14 cents earlier,the least since Sept. 20, 2010.

The MSCI World equity index dropped 1.6 percent and futures onthe Standard & Poor's 500 Index lost 1.1 percent.

Leader Remarks
European Central BankPresident Jean-Claude Trichet will speak to the EuropeanParliament's economic and monetary affairs committee at 9 a.m. NewYork time and Federal Reserve President Ben S. Bernanke willtestify before a congressional panel about the economic outlook at10 a.m.

European finance ministers meeting in Luxembourg considered“technical revisions” to a July deal that foresaw investorscontributing 50 billion euros to a 159 billion-euro rescue. That“private sector involvement” includes debt swaps and rollovers.

“As far as PSI is concerned, we have to take into account thatwe have experienced changes since the decision we have taken onJuly 21,” Luxembourg Prime Minister Jean-Claude Juncker, who chairsthe group of euro-area finance ministers, told reporters today.“These are technical revisions we are discussing.”

Greek Decision
The ministers also pushed back a decision on the release ofGreece's next loan installment until after Oct. 13. It was thesecond postponement of a vote originally slated for yesterday aspart of the 110 billion-euro lifeline granted to Greece lastyear.

“Debate about PSI being back on the agenda raises the risk of adisorderly default, with negative connotations for the bankingsector,” said CIBC's Stretch.

The Dollar Index, which IntercontinentalExchange Inc. uses totrack the greenback against the currencies of six major U.S.trading partners, reached 79.823, the highest level since Jan. 13,before trading at 79.627. The greenback tends to appreciate duringperiods of economic and financial turmoil as investors take refugein the world's main reserve currency.

The U.S. currency gained 9 percent in the past month in thesecond-best performance among the 10 developed nation peers trackedby Bloomberg Correlation-Weighted Currency Indexes. The yenappreciated 9.2 percent in the same period.

Growth Forecast
Goldman Sachs cut its global2012 economic growth forecast, adding it expects a mild recessionin Germany and France and a deeper downturn in the euro area'speriphery over the next few quarters, economists Jan Hatzius andDominic Wilson wrote in a note yesterday.

Goldman also lowered its end-2011 forecast for the euro to $1.38from an earlier projection for it to trade at $1.40. The commoncurrency will be at 106 yen in three months, compared with aprevious estimate of 108 yen, the bank said in a separatereport.

“There isn't much progress in containing the sovereign problem,and Europe will possibly slip into recession,” said Kengo Suzuki,manager of the foreign-bond department in Tokyo at MizuhoSecurities Co., a unit of Japan's third-largest listed bank.“That's negative for the euro.”

Japanese Finance Minister Jun Azumi said the euro's weaknessagainst the yen is “extreme” and isn't good for the stability ofthe global economy.

The euro's 14-day relative strength index versus the dollar andthe yen were both below 30, a level that some traders see assignaling an asset's price has fallen too rapidly and may be poisedfor a rebound.

“We may see some buying back of the euro given the currency hasbeen oversold,” said Mizuho's Suzuki. “It's going to beshort-lived.”

The ruble declined after Urals crude, the main Russian oilblend, fell 1.6 percent yesterday to its lowest close since Feb.15. The commodity traded little changed today.

Bloomberg News

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