May 30 (Bloomberg) -- The euro fell against the dollar after exit polls showed voters in France rejected the European Union constitution in a referendum.

The euro has dropped 2.2 percent this month as opinion polls showed ebbing support for the constitution and reports indicated the region's economy is struggling to grow. The rulebook is aimed at streamlining decision-making after the EU's expansion last year to 25 members from 15.

``With the referendum and also growth slowing down, then this is going hit the euro zone hard,'' said Adrian Hughes, a currency strategist at HSBC Holdings Plc in London, in an interview on May 27. ``The euro is going to struggle.''

Against the dollar, the euro was at $1.2522 at 8:19 a.m. in Auckland, from $1.2585 late on May 27 in New York, according to electronic currency-dealing system EBS. The euro traded at 135.24 versus the yen from 135.82.

Fifty-five percent of French votes were cast against the constitution compared with 45 percent in favor, according to Ipsos SA. Opinion polls last week showed a majority of voters planned to reject the treaty two days from now.

Trading may be less than normal today because of holidays in the U.S. and the U.K., said Richard Franulovich, senior currency strategist at Westpac Banking Corp. in New York. A lack of liquidity may exaggerate swings in prices, he said on May 27.

`Body Blow'

The ``no'' vote kills the constitution and may cast doubt on closer ties with members of the bloc that have not adopted the euro and set back plans by countries including Turkey and Croatia to join.

``The markets will take this as a body blow for the whole European project,'' said Murray Gunn, director of currencies in Edinburgh at Standard Life Investments, which manages about $193 billion. ``There's a good chance, if the French vote no at the weekend, that the support level'' of $1.2450 ``could go in the short-term.'' He spoke in an interview on May 25.

Rejection by France, one of the EU's founding members, gives investors already disappointed by the region's faltering economy one more reason to sell the euro, said Franulovich. The currency is down 8 percent from a record $1.3666 on Dec. 30.

``The European economy is effectively stalled,'' he said. ``The problems in Europe are too big to ignore.''

Manufacturers' confidence in France, Europe's third-largest economy, fell to a 19-month low in May, the government said on May 27. Separate reports last week showed optimism among German and Italian executives waned. Italy is in recession.

Already Sold

The euro's decline may be limited because many investors probably sold euros in the weeks before the vote as opinion polls suggested it would be defeated, said Marvin Barth, a currency strategist in London at Citigroup Inc.

``The market is fully expecting, and priced in, for a French ``no'' vote,'' said Barth before the vote. ``It could be that the euro will do a bit better with the referendum out of the way.''

Figures from the Washington-based Commodity Futures Trading Commission on May 27 showed traders had the most wagers on a euro drop in five years.

The difference in the number of futures wagers by hedge funds and other speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 15,321 as of May 24, up 13,488 a week earlier. The figures are sometimes used as a contrary indicator, a sign a currency may change direction.

The 12-nation currency has weakened to technical levels that may signal a rebound. The euro's 14-day relative strength index versus the dollar, which measures momentum in a given period, fell to 30.76 on May 26 and was 38.15 on May 27. A level below 30 and above 70 may signal a change of direction.

``This is just flat-out extreme,'' said T.J. Marta, a currency strategist in New York at RBC Capital Markets Ltd. ``The euro is truly undervalued.'' He spoke in an interview on May 27.

To contact the reporter on this story: Jake Lee at jlee27@bloomberg.net

Last Updated: May 29, 2005 16:25 EDT