Euro Falls as ECB Loans Fail to Ease Region’s Debt-Crisis View

The euro fell against most of its major peers amid concern that European Central Bank measures to support its banking sector won’t be enough to arrest region’s worsening sovereign-debt crisis.

The 17-nation currency erased an earlier advance as the ECB said it had awarded 489 billion euros ($637 billion) in 1,134-day loans to banks, more than the 293 billion euros forecast by economists, as investors bet the euro-region debt crisis is far from done. The euro-area economy will probably fail to grow next year after expanding 1.6 percent in 2011, while the U.S. is forecast to accelerate to 2.1 percent from 1.8 percent, according to Bloomberg surveys of economists.

“It doesn’t take away the problem of the sovereign-debt financing and the amount of sovereign debt being held by banks becoming a concern for other counterparties,” said David Mann, regional head of research for the Americas at Standard Chartered in New York. “What we saw was a good result, but it wasn’t enough to draw a line under the crisis.”

The euro fell 0.3 percent to $1.3047 at 5:05 p.m. in New York, after climbing as much as 0.9 percent after the ECB announcement. Europe’s shared currency declined 0.1 percent to 101.85 yen. The dollar added 0.2 percent to 78.06 yen.

Annual View

The euro has depreciated 1.3 percent this year against nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Currency Indexes. The yen has advanced 3.8 percent and the dollar has gained 1.1 percent.

South Africa’s rand has declined 19.4 percent against the dollar in 2011, the most of the U.S. currency’s most-traded peers, followed by Mexico’s peso with a 10.7 percent loss. The yen has advanced 3.9 percent for the largest gain against the greenback, while the pound is up 0.4 percent.

Switzerland’d franc fell against the euro and the dollar after Finance Minister Eveline Widmer-Schlumpf said a panel is considering measures, including capital controls and negative interest rates, to weaken the nation’s currency.

The franc weakened 0.2 percent to 1.2211 per euro and 0.4 percent to 93.58 centimes per dollar.

Italy’s two-year yields advanced 11 basis points to 4.98 percent, after falling to 4.74 percent, the least since Oct. 31. They pared an increase of as much as 31 basis points since ECB President Mario Draghi announced the unprecedented loans on Dec. 8 as investors bet that banks will use the cash to buy government debt.

Euro Issues

“We’re starting to see more headwinds start up for the euro,” said Brian Kim, a currency strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc. “Whether it’s been the latest summit hasn’t worked, whether it’s been the growth picture in Europe versus the U.S., people are finally noticing that it’s lagging.”

John Taylor, founder of currency-hedge fund FX Concepts LLC, said the European Central Bank three-year loans to euro-area banks is a form of quantitative easing and the euro is destined to slide next year.

“This is QE in another form,” referring to the monetary policy the Federal Reserve used in undertaking of purchasing debt to keep long-term rates low, Taylor said in an interview on Bloomberg Television’s “Inside Track” with Erik Schatzker. “Three-year money at a low price -- you can give it back after a year - it’s a giveaway. What scares me is what the hell are they going to do with it? They’ll buy Spanish and Italian debt.”

Cash Estimate

Barclays Plc estimated today’s operation will inject 193 billion euros of new money into the system, with 296 billion euros accounted for by maturing loans. The ECB also lent banks $33 billion for 14 days in a regular dollar offering, up from $5.1 billion a week ago, and 29.7 billion euros for 98 days.

“Much like the warnings of catastrophe are seldom fulfilled, so too the promises of resolution,” said Noel Hebert, a credit strategist at Mitsubishi UFJ Securities USA Inc. in New York. “In the end, you risk more euros in the system and you don’t solve the solvency issue.”

South Korea’s won fell as concern eased about political upheaval following the death of North Korea’s leader Kim Jong Il, which was reported Dec. 19, and as U.S. housing data boosted the outlook for the Asian nation’s exporters. The won gained 1.1 percent to 1,149.25 per dollar.

The number of existing homes sold in the U.S. was revised down by an average 14 percent since 2007, magnifying the depth of the slump that contributed to the last recession. Purchases were revised to 4.19 million for 2010, down 15 percent from a prior estimate of 4.91 million, the National Association of Realtors said today in Washington.

IntercontinentalExchange Inc.’s Dollar Index, a gauge of the greenback against the currencies of six major U.S. trading partners, rose 0.2 percent to 79.984.