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Euro Weakens as S&P Puts 15 Euro-Zone Nations on Credit Review

The euro fell against the majority of its major counterparts as Standard & Poor’s put 15 euro-zone nations on watch for a credit downgrade.

The 17-nation currency traded little changed against the dollar as the ratings company said Germany and France and may be stripped of their AAA credit ratings. The 17-nation currency rose earlier after the two countries said they want a rewrite of the European Union’s governing treaties to tighten economic cooperation in the region. The pound snapped a two-day decline and Mexico’s peso was the best performer against the dollar.

“For a euro as a whole, this from S&P is not a positive,” said Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York. “There needs to be a Europe-wide announcement about the treaty, more than just France and Germany before it can really euro positive.”

The euro was little changed at $1.3401 at 5 p.m. New York time after gaining as much as 0.7 percent. The shared currency was 0.2 percent weaker against the yen at 104.27 yen. The dollar weakened 0.2 percent to 77.82 yen.

Brazil’s real gained for a seventh day, the longest rally since April 2010, after Brazil suspended a levy on foreign stock purchases as part of 2.8 billion reais ($1.6 billion) in tax cuts last week intended to safeguard Latin America’s biggest economy from the spreading European debt crisis.

The currency advanced 0.3 percent to 1.7860 per dollar.

Canada Strength

Bank of Canada Governor Mark Carney will be the only central bank leader in the Group of 10 countries to raise interest rates next year, according to forecasts compiled by Bloomberg News. Inflation has exceeded the bank’s 2 percent target for 11 months as the economy grows at double the pace of the Group of Seven nations.

Canada’s dollar rose 0.3 percent to C$1.0171 per U.S. dollar. The currency is turning into a haven for foreign-exchange investors shunning European turmoil and seeking the safety of the U.S. without the budget deficits or political gridlock.

Mexico’s peso was the best performer against the dollar after the nation’s central bank started to auction $400 million of reserves last week. The move was to provide liquidity and arrest a slide in the currency, that’s made it the worst performer in Latin America this year, according to an e-mailed statement from the nation’s Currency Exchange Commission on Nov. 29.

The peso rose 0.8 percent to 13.5291 per dollar.

The pound strengthened against the dollar rising 0.3 percent to $1.5648.

A gauge of services activity based on a survey of purchasing managers rose to 52.1 from 51.3 in October, according to Markit Economics and the Chartered Institute of Purchasing and Supply. In the U.S. the Institute for Supply Management’s non-manufacturing index unexpectedly fell to 52 last month from 52.9 in October, the Tempe, Arizona based-group said today.

Negative Watch

Germany, France, Netherlands, Austria, Finland and Luxembourg, the euro area’s six AAA rated countries, are among the nations being placed on “CreditWatch negative,” pending the result of a summit of European Union leaders on Dec. 9, S&P said.

The downgrade warnings come as German Chancellor Angela Merkel and French President Nicolas Sarkozy push for a rewrite of the EU’s governing rules to tighten economic cooperation in a demonstration of unity on ending the debt crisis. With the fate of the currency shared by the 17 euro countries at risk, Merkel and Sarkozy presented a common platform for a Dec. 8-9 summit of EU leaders in Brussels that aims to halt the crisis now in its third year.

“There’s cognitive disconnect between what they know they need to and what they want to do,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. “This all speaks to the ultimate truth that the European policy makers are unwilling to recognize; that the only way to solve this crisis is federal euro-bonds.”

Italian bonds began a bullish trend after yields dropped below a key technical level in a move that is poised to spur the euro higher against the dollar, according to Bank of America Merrill Lynch.

Italy’s Bonds

Yields on 10-year bonds closed below 6.27 percent today, completing a month-long double top, said MacNeil Curry, head of rates and currencies technical strategy at the Bank of America Corp. unit in New York, in a research note today. The yields failed to rise above 7.47 percent and 7.36 percent in November and may drop to 5.25 percent, which may push the euro higher to $1.3678, according to Curry.

At its meeting on Dec. 8, the ECB will cut its benchmark interest rate to 1 percent from 1.25 percent, according to the median estimate of economists surveyed by Bloomberg News.

The yen fell 1.1 percent last week against nine developed nation currencies, according to Bloomberg Correlation-Weighted Indexes. The dollar declined 1.2 percent.

The Japanese currency may weaken toward 79.36 versus the dollar should it remain above support levels indicated by ichimoku cloud analysis, Commerzbank AG said.

“The market remains underpinned by cloud support at 76.76 and 76.47,” Karen Jones, head of fixed-income, commodity and currency technical analysis at Commerzbank in London, wrote in an e-mailed report today. “We look for these supports to hold the downside and while above here, the market will remain well-placed for a retest of the four-year downtrend at 79.36.”

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