The euro dropped against the dollar for a third day on concern Europe’s debt crisis will persist, making it difficult for governments to raise funds. The 17-nation currency slipped against the pound and the yen as a sale of Portuguese six-month bills fetched higher yields than in a previous auction. The dollar traded at almost a one-week high against the yen before a report forecast to show U.S. services industries grew at the fastest pace in 4 1/2 years, adding to evidence the economy is recovering. “The debt concerns are something that will come back repeatedly and periodically through the course of the year,” said Adam Cole, head of global currency strategy at Royal Bank of Canada in London. “It will be a recurring theme for the euro. The market does still show some sensitivity to supply and the appetite for supply.” The euro fell 0.6 percent to $1.3236 at 7:40 a.m. in New York, from $1.3308 yesterday. The single currency depreciated 0.4 percent to 108.78 yen, from 109.17. The dollar advanced 0.2 percent to 82.17 yen, from 82.04. It touched 82.28 yen yesterday, the highest level since Dec. 29. The dollar rose versus major counterparts on speculation U.S. reports will show companies added the most jobs in three years and service industries expanded, encouraging demand for U.S. assets. “Upbeat economic news is bolstering optimism about the U.S. recovery,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “This is contributing to a firmer dollar.” U.S. Job Market U.S. company employment rose by 100,000 in December, the most since November 2007, according to the median forecast of 32 economists in a Bloomberg News survey before a report from ADP Employer Services at 8:15 a.m. New York time. A projected 138,000 gain in December nonfarm payrolls is the median forecast of 74 economists in a Bloomberg News survey before the Jan. 7 report from the Labor Department. The jobless rate may have eased to 9.7 percent from 9.8 percent. The Institute for Supply Management’s non-manufacturing index, which covers about 90 percent of the economy, increased in December to 55.7, the highest level since May 2006, another survey showed before the figures are published today. IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro and yen, rose as much as 0.5 percent to 79.834. Weaker Aussie The Australian dollar slumped for a third day, dropping 0.5 percent to $1.0005 on concern flooding in Queensland will slow the nation’s economy. The Aussie touched $1.0256 on Dec. 31, the highest level since the 1983 currency float. The euro fell 6.5 percent versus the dollar in 2010 on speculation nations including Greece, Ireland, Portugal and Spain will struggle to pay their debt. Switzerland’s central bank won’t take Irish government bonds due to be repaid from 2011 to 2025 as collateral, the Irish Independent reported today, citing data from the bank. The bank excluded debt held by a group of Irish and foreign lenders based in the country from its list of eligible assets for so-called “repo” deals, the Dublin-based newspaper reported today. Portugal sold 500 million euros of bills due in July at an average yield of 3.686 percent. That compares with a yield of 2.045 percent at a previous auction Sept. 1. The auction attracted bids for 2.6 times the amount offered, compared with a bid-to-cover ratio of 2.4 in September. Test of Demand The sale makes Portugal the first of Europe’s high-deficit nations to test demand for debt this year after the threat of default forced Greece and Ireland to seek bailouts in 2010. “We’ve got concerns about Europe,” Patrick Perret-Green, Singapore-based head of Asian currency strategy at Citigroup Inc., said in a Bloomberg Television interview with John Dawson on the “On the Move Asia” program. “Everyone knows about the huge amount of refunding and public financing issuance that’s got to go on in Europe this year. We’re still fairly dollar constructive.” South Korea’s won fell the most in two weeks as overseas investors sold more local shares than they bought for the first time in three days and signs of a recovery in the U.S. economy eroded the yield advantage of the nation’s assets. The difference in yields between South Korea’s five-year bonds and similar-maturity notes in the U.S. has shrunk to 223 basis points from a high of 302 basis points in November, according to data compiled by Bloomberg. A basis point is 0.01 percentage point. “An improving U.S. economy and a stronger dollar may prompt investors to turn their attention away from Korea and to developed nations,” said Yun Se Min, a currency trader at Busan Bank in Seoul. “That can limit flows, but Korea’s economy is still one of the most promising in the emerging markets so I think we will see continual flows from overseas this year.” The won fell 0.4 percent to 1,125.96 per dollar, according to data compiled by Bloomberg. The drop matched a Dec. 21 slide. To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

Source