By Candice Zachariahs Oct. 15 (Bloomberg) -- The euro may drop 13 percent versus the yen as global credit markets will remain depressed even after U.S. and European officials made as much as $3 trillion available to unclog lending, Citigroup Global Markets Inc. said. The euro may fall as low as 120 yen by the end of 2008 as investors favor the relative safety of the Japanese currency, reinforcing technical charts that signal the euro is vulnerable, said Tom Fitzpatrick, global currency head of strategy at Citigroup Global Markets in New York. The euro traded at 138.89 yen at 7.58 a.m. in Tokyo, from 139.04 yen yesterday. ``You can't have the amount of fear we've just had in the last three weeks and think people are just going to go roaring back to put on risk trades,'' said Fitzpatrick. ``Equities have got hit because of the problem. They in themselves haven't been the problem. The problem has been credit.'' The Standard & Poor's 500 Index slipped 0.5 percent yesterday, after gaining 12 percent on Oct. 13 in the biggest rally since the 1930s, as a worsening outlook for earnings forced investors to look beyond a global push to rescue banks. The London interbank offered rate, or Libor, which banks charge each other for three-month dollar loans, remained 314 basis points above the Federal Reserve's target rate of 1.5 percent yesterday. The dollar Libor-OIS spread, a gauge of demand for cash, narrowed 13 basis points to 341 basis points. It was at 105 basis points on Sept. 15 and 24 basis points on Jan. 24. Carry Trade Collapse Rising borrowing costs are causing a reduction in carry trades, where investors get funds in nations such as Japan that have low borrowing costs and buy assets where returns are higher. The risk is that currency moves erase profits. The euro faces a similar plunge to the U.S. dollar's decline 10 years ago, when the carry trade collapsed following Russia's debt default. The yen jumped from 147.66 per dollar on Aug. 11, 1998, to as strong as 101.25 on Nov. 26, 1999. The greenback's decline was close to the 61.8 percent Fibonacci retracement level, the Citigroup analysts said. ``The present bubble has been more widespread,'' lasting almost seven years to the euro peak of 169.96 yen on July 23. A 61.8 percent pullback from that high would see the euro drop to 120 yen, Citigroup said. Fibonacci analysis uses a mathematical formula based on the theory that prices rise or fall by certain percentages after reaching highs and lows. A break of a Fibonacci level indicates a currency may move to the next. A failure suggests a trend may stall. Fibonacci points include 50 percent and 61.8 percent. The double-top formation in euro-yen also ``remains intact and continues to suggest a move to at least 130,'' wrote Fitzpatrick and London-based technical analyst Shyam Devani in a research note dated Oct. 14. A double-top formation consists of two successive peaks with a trough in the middle and suggests a currency may reverse recent advances. The euro may also decline to $1.28 by the end of 2008, from $1.357 today, as the U.S. economy recovers from a growth slump quicker than Europe, Fitzpatrick said. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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