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Euro drops close to one-year low against dollar

Text by News Wires

Latest update : 2011-12-29

The euro dropped Thursday to $1.2882 against the dollar, its lowest level since January 10. This comes after Italy scraped through a crucial EUR7 billion bond auction.

AFP - The European single currency tumbled Thursday close to a one-year low, as investors fretted over the outcome of Italy's latest bond auction in thin and highly volatile holiday-week trade.

At about 1130 GMT, the euro slumped to $1.2882 -- which was the lowest level since January 10. At the same time, the shared eurozone unit sank against the safe-haven Japanese yen, striking 100.28 yen -- last seen in June 2001.

Italy scraped through a key bond auction test on Thursday at the end of a disastrous year for the eurozone, as Prime Minister Mario Monti prepared to outline plans to get the economy out of recession.

The Italian government raised 7.0 billion euros ($9.0 billion) -- below the maximum sought of 8.5 billion euros but with long-term rates holding below the danger threshold of 7.0 percent which has set off alarm bells around the world.

The rate on bonds due in 2021 was at 6.7 percent -- higher than the level of 5.77 percent for the last similar operation on October 13. The rate on bonds due in 2022, however, was 6.98 percent compared to 7.56 percent in November.

"The bond auction went okay, given what is going on in the eurozone, but almost 7.0 percent for 10-year paper is very high and I can see the yield creeping up very quickly if issues persist," ETX Capital trader Manoj Ladwa told AFP.

"Italy has a lot more leeway than Greece in that it can stay above 7.0 percent for a longer period than the smaller EU members.

"But we cannot rule out a bail out for Italy if the market loses patience with EU ministers' lack of action over the debt crisis."

The ability of Italy to borrow on the market was being closely watched as a test of confidence in the eurozone, which has been blighted this year by the sovereign debt crisis.

Italy had on Wednesday raised 9.0 billion euros in six-month bonds at a rate of 3.251 percent -- half the rate of 6.504 percent that it was forced to pay in November.

Thin trading conditions are meanwhile sparking volatile market moves, ahead of the New Year break.

Date created : 2011-12-29

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