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Euro Set for Worst Weekly Drop in Six as Europe Split on Greece
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NEWYORK, Mar. 19 -- The euro was set for its biggest weekly loss in six on concern Greece will fail to secure financial assistance from the European Union.

The euro slid this week versus 15 of its 16 major counterparts as Greece's prime minister set a one-week deadline for the European Union to craft a financial aid mechanism for the nation, challenging Germany and damping appetite for the 16- nation currency. The Swiss franc traded near its strongest level in 17 months against the euro as an official said policy makers can't prevent the currency's advance indefinitely.

"Reports on inter-governmental relations between Greece and Germany will be the major driver of the euro, and they're likely to keep bickering," said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. "We can see euro falling down to the low $1.30s," over the next week.

The euro traded at $1.3611 as of 8:43 a.m. in Tokyo after yesterday dropping 1 percent to $1.3608 in New York. It bought 123.19 yen from 122.99 yen. The dollar fetched 90.50 yen from 90.39 yen.

The euro's five-day decline against the dollar of 1.1 percent was the biggest since the week ended Feb. 5.

Greek Prime Minister George Papandreou said yesterday he may turn to the International Monetary Fund to overcome his nation's debt crisis unless EU leaders agree to set up a lending facility at a summit March 25-26. The IMF option has already been dismissed by European Central Bank President Jean-Claude Trichet and French President Nicolas Sarkozy, who said it would show the EU can't solve its own crises.

Merkel on IMF

German Chancellor Angela Merkel told parliament in Berlin March 17 the IMF may be the only answer to Greece's fiscal problems. In the absence of a European lender of last resort, calling in the IMF "would probably have to be the way out right now if action were to be taken," she said.

Europeans purchased 13.7 billion euros ($18.6 billion) of foreign bonds and notes in January, and put another 19.1 billion into non-euro money market instruments, data released yesterday by the ECB showed. Foreigners dumped 3.7 billion euros of euro- area bonds and notes in January, after selling 6.8 billion in December.

"It is extremely unusual to see two consecutive months of selling; the last time was mid-2005," currency strategists at Nomura International Plc including Jens Nordvig in New York wrote in a report yesterday. The data "clearly suggest to us that euro weakness has been driven by a broad shift in investor attitudes, a shift which goes well beyond shorter-term FX position changes within hedge funds," they wrote.

Long Dollar

The dollar yesterday rose versus 14 of the 16 most-traded currencies as a report showed that manufacturing in the Philadelphia region expanded in March at the fastest pace this year. The Federal Reserve Bank of Philadelphia's general economic index rose to 18.9, the highest level since December, from 17.6 in February. Readings greater than zero signal growth.

The currency was also bolstered as economists said the Federal Reserve may raise the discount rate, charged on direct loans to banks, before the next meeting of the Federal Open Market Committee on April 28.

"The improved U.S. economic outlook and very modest policy tightening outlook continue to highlight the U.S.'s relative economic growth outperformance," Emma Lawson, a currency strategist in London at Morgan Stanley, wrote in a research note yesterday "We retain our long dollar-yen and short euro-dollar positions."

Swiss Franc

The franc strengthened 1.2 percent against the euro, its biggest weekly gain since December 2008, as Swiss National Bank Governing Board member Jean-Pierre Danthine said yesterday policy makers can't keep borrowing costs near zero for an extended period of time and maintain purchases of foreign currencies indefinitely.

Danthine said the central bank has the "toolbox" to exit a policy in which it has sought to prevent excessive gains in the franc versus the euro for the past year. "Households and firms should prepare themselves for a return, sometime in the future, to a world of higher interest rates, with exchange rates being guided by market forces," he said in Zurich yesterday.

"Suffice it to say that the toolbox is available" for an exit, he said. "It is not a question of how, only of when."

The Swiss currency traded at 1.4393 per euro after touching 1.4356 yesterday, the strongest level since October 2008.


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