Tuesday, Jul 24, 2012

-- Euro steady against dollar as weak euro zone business data

-- Spain, Greek debt concerns continue to nag

-- Dollar trades near Y78 amid Japanese intervention talk

By Alexandra Fletcher

The euro held steady near a two-year low against the dollar in European trading Tuesday after business activity data flagged the growing risk of recession in the euro zone while worries about the debt troubles in Greece and Spain lingered in the background.

Speculation over possible Japanese intervention to tame yen strength also swirled as the Japanese currency hovered near the Y78 mark against the buck.

The euro traded either side of $1.21 over the session after a preliminary reading of the euro-zone composite purchasing managers' index for July came in unchanged from June. Nonetheless, it showed euro-zone companies cutting output for a sixth straight month. A reading below 50 means a month-to-month contraction.

That followed data which showed private sector activity in Germany fell to its lowest level in more than three years and offset earlier Chinese data which suggested the world's second-biggest economy might escape a hard landing.

"[The] euro-area PMI hasn't changed, but it certainly hasn't brightened the overall outlook for the euro zone while the German numbers were particularly weak, which shows us that the problems of the periphery nations have become a general euro-area wide problem," said Paul Robinson, European head of foreign exchange research at Barclays PLC in London.

The market's main potential drivers remained Spain and Greece, strategists said. Talks are due Tuesday between the finance ministers of Spain and Germany, while officials from the troika--the European Commission, European Central Bank and International Monetary Fund--are due in Athens to review Greece's reform program.

Spain successfully sold shorter-dated treasury bills at auction, but with benchmark 10-year bond yields still at euro-era highs of around 7.5%, speculation remains rife that Spain could yet resort to a full sovereign bailout.

Elsewhere, the Japanese yen held onto its gains against the dollar and edged towards levels some in the market thought could provoke the Bank of Japan into to action, to weaken the currency and protect its exporters.

"Aside from Spain and Greece, another focus in the next few days could be the possibility of yen intervention," said Peter Kinsella, currency strategist at Commerzbank. "People are beginning to get a little anxious."

The Hungarian forint was steady against the euro ahead of an interest rate decision by the Hungarian central bank at 1200 GMT. While analysts think a rate cut is needed, many believe rates will remain on hold at 7% until talks with the International Monetary Fund over financial aid are concluded within the next few months.

Looking ahead, Federal Reserve chairman Ben Bernanke is due to speak at 1245 GMT, while eyes will be on U.S. preliminary manufacturing data at 1300 GMT.

At 1102 GMT, the euro was trading at $1.2097 against the dollar, compared with $1.2067 late Monday in New York, according to trading system EBS. The dollar was at Y78.18 against the yen, compared with Y78.40, while the euro was at Y94.57, compared with Y94.98. Meanwhile, the pound was trading at $1.5506 against the dollar, compared with $1.5508 late Monday in New York.

The Wall Street Journal Dollar Index, which tracks the U.S. dollar against a basket of major currencies, was at 72.64 from about 72.61.

Write to Alexandra Fletcher at alexandra.fletcher@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

July 24, 2012 07:27 ET (11:27 GMT)