Amid Worries, Euro Sinks Against the Yen and Dollar

Posted January 5th, 2012 at 10:15 am (UTC-5)
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The value of the euro fell Thursday to an 11-year low against the Japanese yen and a 16-month low against the U.S. dollar as investors showed new concern about the European economy.

The euro traded below 99 yen, its lowest point against the Japanese currency since December 2000, and dipped below $1.28, the lowest exchange rate for the dollar since September 2010.

Three European economic indicators spelled trouble for the euro, the common currency used by a 17-nation bloc on the continent.

France sold more than $10 billion in debt, even as financial services firms continue to consider whether to cut the country's top AAA credit rating. But the interest rate on 10-year bonds edged up from a similar sale in December.

Hungary is just outside the eurozone, but its key stock market index continued to fall as the government's borrowing costs climbed sharply. The interest rates on $140 million in one-year loans for the Budapest government increased more than two percentage points to nearly 10 percent. Financial markets are worried about the fate of Hungary's talks with the International Monetary Fund and the European Union about a possible credit line.

In Spain, Economy Minister Luis de Guindos said the country's banks may have to write off up to $65 billion in bad loans, mostly for debts on devalued real estate assets.

Debt-ridden Greece, Ireland and Portugal have already been forced to secure international bailouts, and Greece is now negotiating the terms of a second package of loans and debt write-off. The EU, with the exception of Britain, has agreed to tighter spending restrictions on individual countries, but details of the new controls have yet to be worked out.

Investors are worried that Italy and Spain, with the eurozone's third and fourth largest economies, may also need international bailouts but that the size of them may overwhelm the continent's ability to pay for the debt. Both countries have embarked on unpopular austerity plans calling for cuts in popular social spending programs.