The euro dipped below $1.21 on
foreign-exchange markets Monday for the first time in two years as
speculation continued that Spain might need a bailout.
Share markets also dived. Spain and Italy banned short-selling of
stocks, preventing investors from offering cut-price shares they do
not yet own. The turmoil worsened after the ban.
The common currency went as low as 1.2071 dollars in afternoon
trading, a level not seen since June 2010 and also marking an 11-year
low against the Japanese yen.
The European Central Bank posted a reference rate of 1.2105
dollars for the day, nearly one cent below Friday's 1.2200.
Spanish and European Commission officials dismissed a fresh round
of speculation that growing problems among Spanish regional
governments would prompt Madrid to seek a bailout, as yields on
10-year Spanish bonds spiked past 7.5 per cent.
In Germany, the uncertainty was also attributed to predictions by
Economics Minister Philipp Roesler in a Sunday television interview
that Athens might "come to the conviction that it is smarter for
Greece to leave the eurozone."
By mid-afternoon, the Eurostoxx 50 index was running 3 per cent
down from Friday at 2,169 while the main Frankfurt index, the DAX,
was off 3.6 per cent at 6,387.
Japanese shares had dropped 1.8 per cent earlier Monday as
export-linked stocks were pulled down by the yen's rise. A weak euro
makes it harder to sell into the eurozone, one of the world's major
markets for goods and services.
The Italian authorities' short-selling ban runs until Friday while
Spain's will be in force for three months.
"After the good corporate-reporting numbers of last week,
investors are now regarding the markets with their eurocrisis
spectacles on," said Anita Paluch, a trader at Gekko Global Partners.
The German government tried to calm the uncertainty over Greece,
which was also fed by an unconfirmed report in Spiegel magazine over
the weekend that the IMF did not want to offer Greece further aid.
Greece's donors - the European Commission, the European Central
Bank and the IMF - have been assessing whether the debt-ridden
country is meeting its reform obligations. The so-called troika is to
return to Athens on Tuesday and issue a report in September.
Asked if Berlin favoured a third package of aid for Greece,
spokesman Georg Streiter said, "I'm not saying anything about that,"
adding, "The government believes it makes sense to wait for the
troika's report ... Everything else is sentiment, interpretation."
