U.S. Dollar Falls vs. Euro on Spain Bailout Hopes

NEW YORK, Oct. 18 -- The U.S. dollar dropped against the euro amid expectations that Spain would ask for a bailout next month at the earliest.

The euro hit 1.3139, the highest level in a month after Moody' s confirmed the Baa3 rating of the Spain's government bond while maintained its negative outlook.

Moody's said Tuesday the decision to confirm Spain's sovereign rating at the "investment-grade" reflected the positive developments in the debt-ridden country, as well as in the euro zone since June. Moody's believed that support from the eurozone and European Central Bank (ECB), along with the Spanish government's own efforts, should allow the government to maintain capital market access at reasonable rates.

The euro has remained strong recently, supported by speculations that Spain would ask for a financial aid eventually, before the ECB could buy the troubled country's debt.

Meanwhile, the dollar pared losses against the yen after data showed starts of new U.S. homes rose in September at its largest rate in more than four years, another sign the U.S. housing market is on the course of recovery.

In late New York trading, the euro surged to 1.3127 from 1.3043 of the previous session, and the British pound rose to 1.6154 dollars from 1.6113.

The dollar fell to 0.9220 Swiss francs from 0.9270 and went down to 0.9777 Canadian dollars from 0.9871.

The dollar bought 78.98 Japanese yen, higher than 78.90 in the previous session.