By EVA SZALAY
LONDONâ€"The euro recovered some poise in European trading Monday but remained vulnerable after hitting multimonth lows against the dollar and sterling as Spanish fiscal worries pounded bond and equity markets.
Yields on 10-year Spanish government bonds rose above 6% for the first time since December and Spanish equities briefly hit a new three-year low, while the cost of insuring against a Spanish default rose to a record high.
The euro at one point flopped to its weakest level since February against the dollar, falling to as low as $1.2994 in early trade from $1.3077 late Friday in New York, before steadying above $1.30. The euro also sank to a 19-month low against the pound of £0.8210, compared with £0.8248 late Friday.
"Signs are building that the euro is heading lower from here and although positioning could limit the size of the move it won't cancel it out," said Ankita Dudani, a currency strategist at Royal Bank of Scotland in London. By "positioning" Ms. Dudani was referring to data which showed another rise in speculative bets on a declining euro at the Chicago Mercantile Exchange, which could yet support the single currency if they are subsequently reversed.
Adding to evidence of growing investor stress, yields on safe-haven 10-year German bunds printed another record low at 1.632%, just as corresponding Spanish yields topped out at 6.12%.
"The [euro zone's] bailout resources are simply not big enough to cope with a Spain. This is taking a toll on the euro which is threatening a break below $1.30," said Tom Levinson, a currency strategist at ING in a note to clients.
The area around $1.30 is littered with key technical levels and stop losses, according to traders and strategists. Commerzbank said a sustained break below $1.30 could open up the way to $1.2920 and $1.2860, while another trader cited a cluster of option barriers at $1.2975.
Meanwhile, an internal survey of foreign-exchange sales teams conducted by Credit Suisse showed currency investor sentiment sliding back to levels seen before the European Central Bank's long-term refinancing operations.
"Over 70% of our respondents believe clients are bearish on risk, more than double the 34% we recorded in our last survey," Credit Suisse said.
The Chinese yuan ended its first day in its wider trading range lower against the dollar, although it was trading comfortably above earlier lows. The dollar-yuan exchange rate closed at 6.3150, down from the intraday peak of 6.3250 shortly after the market opened, but up from 6.3030 late Friday. On Saturday, the People's Bank of China said that effective Monday, it would widen the yuan's daily trading band against the dollar to 1.0% above and below the central parity rate, from 0.5% previously.
Spain auctions short-term bills Tuesday and bonds Thursday, while the International Monetary Fund will publish its new economic forecasts Tuesday.
Around midday in Europe, the euro was trading at $1.3028 compared with $1.3077 late Friday in New York, according to EBS via CQG. The single currency was at £0.8223, compared with £0.8248 over the same period, and against the dollar the pound was at $1.5847 from $1.5843. The yen was trading at ¥80.73 against the dollar, compared with ¥80.92 late Friday.
The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at about 80.04 from 79.868.
Write to Eva Szalay at eva.szalay@dowjones.com
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