By Yoshiaki Nohara and Ron Harui Jan. 29 (Bloomberg) -- The euro fell to the lowest level in more than six months against the dollar on concern Greece’s fiscal problems will spread, damping demand for European assets. The 16-nation currency slid for a second day against the yen after the cost to protect Greek government bonds from default climbed to a record and before a report forecast to show the euro-zone’s unemployment rate reached an 11-year high. The yen and dollar rose against most major counterparts as Asian stocks declined, increasing demand for safer investments. “Risk aversion is dominating overall market sentiment,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. “Worries are increasing on whether other European countries can aid Greece when most of them are struggling with their own problems. The bias is for the yen and the dollar to be bought.” Europe’s currency fell to $1.3934 as of 2:18 p.m. in Tokyo from $1.3971 in New York yesterday, after declining to $1.3913, the lowest level since July 14. The euro dropped to 125.31 per yen from 125.63, after weakening to 124.82, the lowest since April 28. The dollar was at 89.92 yen from 89.92 yen. The U.S. currency was at C$1.0686 from C$1.0663, after touching C$1.0695, the highest since Dec. 21. The euro headed for its second monthly decline against the dollar as Greek bonds and credit-default swaps showed investors are beginning to doubt the nation can reduce the biggest budget shortfall in the European Union without assistance from outside. Debt Woes Greece’s government bonds are the world’s worst performers in January, losing 4.19 percent in local currency terms and extending their decline over the past three months to 10 percent, Bloomberg/EFFAS indexes show. Credit-default swaps tied to Greece trade at about the same levels as Dubai when it got a $10 billion bailout from Abu Dhabi in December. “Recent developments have led to a wholesale assessment of the euro-zone’s structural problems, especially as sovereign economic divergence widens,” Geoffrey Yu, a currency strategist in London at UBS AG, wrote in a note to clients today. “If fears of contagion become widespread, risk-averse investors could start to gun for even the larger or ‘stronger’ euro-zone economies and their debt.” Portugal needs deeper deficit cuts than included in its 2010 budget to avoid a rating cut, Moody’s Investors Service said in a report yesterday. The cost of insuring five-year Portuguese debt against default rose to a five-year high of 168.6 basis points yesterday, while the cost to insure Greece’s government bonds surged to a record 421.8. Jobless Rate The German and French governments denied a report yesterday in the newspaper Le Monde that European Union member states are examining ways to provide assistance. Greek Prime Minister George Papandreou said the country doesn’t need to borrow from European nations. The European jobless rate rose to 10.1 percent in December, the highest since June 1998, according to a Bloomberg News survey of economists before the European Union statistics office report today. The Japanese and U.S. currencies were set for a third weekly gain against the Australian dollar as the Nikkei 225 Stock Average fell 1.5 percent and the MSCI Asia Pacific Index of regional shares dropped 1.4 percent. Japan’s currency rose to 80.11 per Australian dollar from 80.44 yesterday, set for a 1 percent gain this week. The dollar gained to 89.08 cents against Australia’s currency from 89.46 cents, headed for a 1.1 weekly advance. Stochastic Chart The yen typically strengthens in times of uncertainty because Japan’s trade surplus negates its reliance on overseas lenders for funding. The dollar benefits as the world’s main reserve currency. A technical analysis chart indicates the euro’s 5.9 percent slump versus the yen this month was excessive. The European currency’s 14-day stochastic oscillator against the yen fell to 8.1 today, below the 20 threshold that indicates an asset price may have fallen too fast and is poised to strengthen. “The yen has been overbought,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This is one reason why the currency is being sold a bit.” To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

Source