The dollar rose against the euro on Wednesday, after data showing much worse than expected U.S. retail sales and a downgrade to Greece's debt rating deepened fears about the global economy, spurring safe-haven flows to the greenback. While the news of a slump in retail sales highlighted the severity of the U.S. recession, the dollar rallied as growing worries about economic downturns worldwide prompted traders to seek refuge in dollar-denominated assets. "The retail sales number was not only negative for the U.S. economy, but also negative for risk sentiment," said Michael Woolfolk, senior currency strategist at The Bank of New York Mellon in New York. "Consequently, it served to extend the dollar's gains as well as bolster demand for the yen." The euro came under renewed selling pressure, falling below $1.31 to a fresh one-month low, after Standard & Poor's cut its credit ratings on Greece's sovereign debt to A-/A-2 with a stable outlook. For details, see [ID:nLE271449]. In early New York trading, the euro fell 0.6 percent to $1.3108 , after earlier hitting a low of $1.3094, the lowest level since mid-December. "The cut to Greece's rating hitting the euro here," said a trader at Forex.com in Bedminster, New Jersey. "Greece is only about 3 percent of the euro zone but the risk that other mentioned countries like Spain, which is 12 percent of the euro zone, could have their rating cut looks to have euro longs spooked a touch here." Markets were already jittery after Spain and Portugal became the third and fourth euro zone countries since last week to be warned by S&P that their credit rating is under threat from the global financial crisis. Concerns over the single currency bloc's economy and public finances mounted ahead of the European Central Bank's policy-setting meeting on Thursday, when the ECB is expected to lower rates by at least 50 basis points. "For the most part, traders are looking to the ECB decision tomorrow," said Ronald Simpson, managing director of global currency analysis at Action Economics in Tampa, Florida. "There has been soft data out of the euro zone and S&P has been making noise about downgrading Spain...and Portugal, which puts some pressure on the euro." Emphasizing the grim state of the euro zone economy was the German Federal Statistics Office, which said the country's economy likely contracted by between 1.5 percent and 2.0 percent in the final three months of 2008. See [ID:nLE186260]. The euro already had been under heavy selling pressure earlier in the day after reports, later denied, that Irish Prime Minister Brian Cowen said IMF help may be needed if Ireland's economic downturn worsens. The IMF said there was no reason to think that Ireland will need IMF financing. [ID:nLE197032]. The subdued risk appetite also lifted the low-yielding yen. The dollar last traded down 0.1 percent at 89.01 yen , while the euro fell 0.6 percent to 116.91 yen . (Additional reporting by Gertrude-Chavez Dreyfuss; Editing by Chizu Nomiyama)

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