Euro struggles as economic growth worries persist

LONDON: The euro fell to a one-week low against the dollar and dropped sharply against the yen on Thursday after weaker-than-expected euro zone business activity data stoked concerns about a deepening recession in the region.

While German private sector contraction eased in September, the purchasing managers' index (PMI) numbers from China and Europe's second-largest economy France were weak. That drove some to shed holdings in riskier assets and currencies for safe-haven government bonds.

 The euro gained little support from Spanish 10-year borrowing costs falling to their lowest level since January at an auction on Thursday, as uncertainty about whether Madrid would seek a bailout unnerved investors.

Spain has been dithering on seeking financial aid that could allow the European Central Bank to buy its bonds.

Analysts said the single currency's losses could be limited however, by the European Central Bank's plan to intervene in bond markets to lower borrowing costs and after the Federal Reserve unleashed a fresh bout of monetary easing last week.

"I think euro/dollar will form a base to the extent this weakness is about global risk appetite which is backstopped by the Fed, and we think Spain will eventually ask for a bailout," said Adam Cole, head of FX strategy at RBC Capital Markets.

"I would be surprised if we get back down below $1.28."

The euro fell 0.9 percent to $1.2930, off Monday's four-month peak of $1.3173. It dropped through stops at $1.2950, before recovering to trade at $1.2949, still down on the day.

It shed more than 1 percent to 101.07 yen with stop-loss orders cited below 101 yen and was last at 101.31.

Strategists said weak euro zone economic fundamentals would continue to weigh on the single currency, while the poor Chinese data raised concerns about global growth.

"Today's PMI data shows that irrespective of what the ECB has done, the euro zone remains mired in a recession and that will weigh on the euro," said Peter Kinsella, currency strategist at Commerzbank.

While the ECB plan has cut borrowing costs for peripheral states, it requires a country first to seek aid from the region's rescue funds -- a step Spain is still mulling.

SAFE-HAVEN CURRENCIES GAIN

The Australian dollar fell 1 percent to a nine-day low of $1.0367 after the Chinese data.

China is Australia's single largest export market.

The yen pushed higher against most other major currencies, staying on a firm footing after staging a surprise bounce the previous day as an initial sell-off in reaction to the Bank of Japan's monetary easing fizzled out.

The US dollar fell 0.2 percent to 78.24 yen, pulling away from a one-month high of 79.23 yen set on Wednesday after the BOJ boosted its asset-buying programme to help fuel the country's economic recovery.

Andrew Robinson, FX analyst for Saxo Capital Markets in Singapore said the dollar was likely to trade in a range of roughly 77 yen to 79 yen over the next week or two.

Any drop towards 77 yen could spark fresh jitters about the potential for yen-selling intervention by Japanese authorities. The dollar hit a seven-month low of 77.13 yen last week.