By William L. Watts & Lisa Twaronite, MarketWatch
LONDON (MarketWatch) -- The euro fell to a five-month low versus the U.S. dollar Wednesday as fears that Chinese efforts to rein in lending led investors to shun risky assets and ongoing worries about Greece's budget problems sent kept pressure on the European single currency.
The dollar index (DXY 78.18, +0.68, +0.88%) traded at 78.074 up from 77.451 in late North American trading Tuesday. The index tracks the dollar against a trade-weighted basket of six major rivals.
The euro traded at $1.4143 versus the dollar, down from $1.4301 late Tuesday, falling to its lowest level since mid-August.
A report in the state-run China Securities Journal, citing several unnamed sources, said the China Banking Regulatory Commission asked several commercial banks to stop issuing new loans in the remaining days of January.
China's top banking regulator Liu Mingkang denied the report, but said Chinese banks were expected to issue about 7.5 trillion yuan ($1.1 trillion) in new loans in 2010 compared to 9.59 trillion yuan in 2009, reflecting efforts to rein in bank lending which nearly doubled last year. Read about potential China bank lending curbs.
Most Asian markets ended lower Wednesday. European shares were mostly lower. U.S. stock index futures pointed to a lower opening for Wall Street ahead of a raft of earnings data from major banks. See Europe Markets. Read Indications.
Strategists at BNP Paribas said the Chinese data also added to pressure on the Australian dollar, fell 1.3% versus the U.S. unit to trade 91.23 U.S. cents. The Australian economy is highly sensitive to Chinese demand for commodities.
The strategists said they continued to view the Aussie as a "relative outperformer," however, and argued that rising consumer confidence has reinforced prospects for a rate hike in early February, which would be supportive for the currency.
Meanwhile, the sell-off in Chinese stocks benefited lower-yielding currencies, such as the dollar and yen, which tend to rise whenever investors are more risk averse and seek assets that are perceived to be safer.
The dollar traded at 90.92 yen versus the Japanese currency, down 0.2%.
Pressure on the euro was tied to concerns about China and ongoing worries about Greece's budget woes and the potential for other sovereign debt problems in the 16-nation euro zone, analysts said.
Euro sentiment "remains negative and if [economic] data does not offer a glimmer of hope sometime soon, the markets may want to take a run at the psychologically important 1.4000 level in the near future," said Boris Schlossberg, director of currency research at GFT, in emailed comments.
Strategists at KBC Bank in Brussels said the break below $1.4218 triggered sell stops, which accelerated the euro's fall.
"The strong downward momentum with the key $1.4218 level so close simply was too obvious (an) opportunity for momentum traders to try some additional stop-tripping," they wrote. "Once again, the Chinese measures were at best a good excuse."
The British pound fell to $1.6261 versus the dollar from $1.6369. The euro, meanwhile, extended its drop versus sterling to change hands at 86.94 pence, a loss of 0.4% and also a four-month low.
The pound was unable to maintain earlier strength against the broadly higher dollar. Sterling had been buoyed by a larger-than-expected drop in December U.K. jobless benefit claimants.
Minutes of the Bank of England's January policy meeting offered little surprise, showing the Monetary Policy Committee voted 9-0 to leave the key lending rate unchanged at a record low 0.5% and to maintain its 200 billion pound ($327.4 billion) quantitative-easing program on schedule. Read about the BOE meeting and jobless data.
The final round of purchases under the program are set to run out in coming weeks, forcing the MPC to make up its mind next month whether to extend the plan.
The minutes showed members remained confident inflation will remain under control over the longer term despite expectations for a short-term blip higher due to a range of special factors, including the December expiration of a temporary cut in the value-added tax.
BOE Governor Mervyn King on Tuesday night dismissed the 2.9% annual rise in December CPI reported earlier in the day.
