Euro Falls on Growth Outlook, Spanish Aid Uncertainty

The euro fell for the first time in three days versus the dollar as concern growth in the region is faltering overshadowed prospects that leaders meeting this week will agree on new measures to solve the debt crisis.

The 17-nation currency dropped against 10 of its 16 major counterparts as investors waited for a decision on whether Spain will seek a bailout and before a report forecast to show investor confidence declined in Germany, the region’s biggest economy. New Zealand’s dollar weakened after a report showed services shrank in September.

“Economic data from Europe are weak and continue to weigh on the euro,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711), a currency-margin company. “There are hopes Spain will request aid, but that is yet to be decided.”

The euro fell 0.2 percent to $1.2928 at 8:09 a.m. London time after appreciating 0.6 percent over the past two trading days. The single currency was little changed at 101.67 yen. The dollar gained 0.2 percent to 78.57 yen.

The ZEW Center for European Economic Research will say its index of expectations among German investors and analysts was at minus 14.9 this month from minus 18.2 in September, according to the median estimate of economists in a Bloomberg News survey before the report tomorrow. A gauge for current conditions dropped to 11.8 from 12.6, a separate survey showed.

China Exports

China’s exports to the European Union fell 10.7 percent in September, a fourth month of declines, the Beijing-based Customs General Administration said on Oct. 13. Bank of Israel Governor Stanley Fischer said the world economy is “awfully close” to a recession, adding to concern raised at annual meetings of the International Monetary Fund last week.

EU leaders will meet in Brussels on Oct. 18-19 as Greece seeks to justify renewed aid and Spain holds out from requesting aid from the 500 billion euro permanent rescue fund, the European Stability Mechanism.

Spanish Economy Minister Luis de Guindos said on the weekend in Tokyo that he felt “extremely comfortable” with his country’s ability to fund itself through the rest of 2012. Spain is scheduled to sell 12- and 18-month bills tomorrow, and notes and bonds on Oct. 18. Spain’s 10-year bond yield ended trading at 5.63 percent on Oct. 12, the lowest close since April 3.

“The euro would probably drop if Spain doesn’t request aid,” said Kengo Suzuki, a currency strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value.

Euro’s Decline

The euro weakened 5.4 percent in the past 12 months, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen dropped 1.8 percent and the dollar gained 1.9 percent.

Figures from the Commodity Futures Trading Commission showed the difference in the number of wagers by hedge funds and other large speculators on a decline in the euro versus the dollar compared with those on a gain -- so-called net shorts -- was 72,570 on Oct. 9. That was the most since the period ended Sept. 21. Bets on the yen’s gains against the greenback, or net long positions, declined to 12,914 in the same period, the least since the week through Aug. 21, the data show.

“There has been some major short covering in the U.S. dollar over the past week,” Mitul Kotecha, Hong Kong-based head of foreign-exchange strategy at Credit Agricole CIB, wrote today in an e-mailed note to clients. “The U.S. dollar will likely continue to edge higher against the background of growing cautiousness towards risk assets.”

The so-called kiwi fell for a second day against the dollar after Bank of New Zealand Ltd. and Business New Zealand said their Performance of Services Index fell to 49.6 in September. It was the first time since October 2009 that the gauge was below 50, the dividing line between expansion and contraction.

New Zealand’s currency depreciated 0.2 percent to 81.45 U.S. cents.

To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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