LONDON: The euro fell on Monday after a leading survey of German business sentiment disappointed, and uncertainty over Spain and Greece was also likely to undermine the single currency.
Spanish government bond yields rose on signs that Madrid is making slow progress towards asking for the international bailout that markets are anticipating, pushing Italian yields higher with it.
The euro fell 0.6 percent to a session low of $1.2902 , with bids from large Asian investors cited around $1.2850. The single currency was last trading at $1.2915, but has shed more than 1.5 percent from a four-month peak of $1.3173 reached on Sept. 17.
Initial support is seen at $1.2905, the 23.6 percent retracement of the July to September rally, followed by its 200-day moving average, which comes in around $1.2828.
The Munich-based Ifo think tank said on Monday its business climate index, based on a monthly survey of some 7,000 firms, fell to 101.4 in September from 102.3 in August. A Reuters poll of 45 economists had forecast a slight rise to 102.5.
"The euro has fallen after the German Ifo numbers, but this has to be taken in the context as part of the survey was done before the German constitutional court ruling," said Chris Walker, currency strategist at UBS.
Germany's constitutional court gave its approval on Sept. 12 for the euro zone's bailout fund to go ahead, boosting the euro. Ifo economist Klaus Wohlrabe said 50 percent of the Ifo survey's responses were taken before the court's decision.
"In the near term, what happens to the euro is very much contingent to when Spain applies for a bailout. So far they are resisting," Walker added.
Madrid is expected to present its draft budget plan for 2013 later this week and announce new structural reforms, while the results of stress tests on the wobbly Spanish banking sector are also due. These could set the stage for a full-scale bailout.
However, Economy Minister Luis de Guindos said on Saturday that Spain will not rush to seek external aid to finance its debt, and EU officials said they did not expect Prime Minister Mariano Rajoy to seek an assistance programme before a regional election in his native Galicia on Oct. 21.
Adding pressure for Spain to seek aid is a credit review by ratings agency Moody's expected this week, as well as a 27.5 billion euro refinancing hump at the end of next month. Moody's could downgrade Spanish debt to junk status, although the agency has said it would welcome a Spanish aid request.
"What makes today's markets difficult is that a downgrade could actually prompt Spain to seek aid, which would be positive for the euro," said Katsunori Kitakura, associate general manager of market making at Sumitomo Mitsui Trust Bank.
Greece meanwhile has yet to secure a deal on an austerity package w ith its international lenders.
An EU/IMF report into whether Greece's debt is manageable, originally expected next month, now looks set to be delayed until after Nov. 6.
INTERVENTION JITTERS FOR YEN
Nevertheless, euro zone leaders were discussing leveraging the bloc's new permanent bailout scheme, a senior German official said on Monday. Spiegel magazine reported in its latest edition that the euro zone wanted to leverage the rescue fund for a total capacity of more than 2 trillion euros.
Traders say this is likely to support the euro, which has rallied since late July, driven mainly by the European Central Bank's bond-buying pledge and the US Federal Reserve's additional easing.
Data on Friday from US derivatives watchdog CFTC showed that speculators' net euro short positions shrank to their lowest level since November, having fallen to just above one-third of the record peak, reached in June.
Against the yen, the euro slipped to as low as 100.75 yen , its lowest level in 10 days.
The dollar also dipped 0.2 percent to 77.98 yen, with traders citing Japanese repatriation flows before the financial half-yearly closing as helping the yen.
The dollar has support at 78.00 yen as traders are wary Japan might intervene in the market should the yen gain further. The Bank of Japan's easing last week is seen as paving the way for such a move.
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