By Ben Levisohn and Lukanyo Mnyanda May 5 (Bloomberg) -- The euro plunged to its weakest level against the dollar in more than a year on concern Europe’s debt crisis is worsening as protests in Greece turned deadly and Moody’s Investors Service warned that Portugal’s credit rating may be reduced. The 16-nation currency traded below $1.29 for the first time since March 2009. The dollar and yen strengthened against most other currencies as stocks slid across the globe and commodities plunged, damping demand for as growth-related assets. The pound reaching its strongest level against the euro in more than eight months amid speculation tomorrow’s U.K. election may leave the Conservative Party in a position to form a government. “The market has lost confidence in the bailout process and that has led to concern over the euro,” said Amelia Bourdeau, a currency strategist in Stamford, Connecticut, at UBS AG. “It’s questioning the medium-term implications of the package: Can Greece meet the terms and will the package be enough to stop contagion risk?” The euro fell 1 percent to $1.2856 at 10:17 a.m. in New York, from $1.2987 yesterday. It touched $1.2804, the weakest level since March 12, 2009. It was at 120.72 yen, the lowest since March 4, from 122.78 yen. The greenback bought 94.46 yen, from 94.54 yen. Financial markets were shut today in Japan for a holiday. Europe’s common currency has dropped as much as 5.3 percent this week, the biggest three-day decline since January 2009, and has fallen over 15 percent from its 12-month high of $1.5144 reached on Nov. 25. It has lost 7 percent of its value this year, Bloomberg Correlation-Weighted Currency Indexes show. ‘The Future of Europe’ The pound rose for a third day against the euro, reaching its strongest level in more than eight months, amid speculation tomorrow’s U.K. election may leave the Conservative Party in a position to form a government. The 110 billion-euro ($141 billion) aid package is about “the future of Europe and the future of Germany,” German Chancellor Angela Merkel told lawmakers in Berlin as she opened a debate on the program. European Central Bank council member Axel Weber said Greece’s fiscal crisis is threatening “grave contagion effects” in the euro area, justifying Germany’s contribution to the aid package. Moody’s placed its Aa2 rating for Portugal on review for a possible downgrade, a process that will conclude within three months, the company said in a statement. Portugal has held the third-highest Moody’s investment grade since 1998. The yield premium investors demand to hold Portuguese 10- year bonds instead of benchmark German government debt rose to 280 basis points today, the most since the euro’s introduction in 1999. Investors demanded 707 basis points more to hold 10- year Greek bonds instead of similar-maturity bunds, also a record. ‘Market Fears’ “Traders and investors are watching market dynamics and noting that proposals aren’t calming market fears,” said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York. “If yields continue to rise and financing becomes more onerous for other countries, it will reinforce market fears. It’s a situation where there’s potential of a vicious circle to develop.” Greek protests against government austerity measures turned fatal when fire officials at the scene said they discovered three bodies in the building in central Athens set ablaze by demonstrators, according to a fire-department statement sent by text message today. Europe’s debt crisis may spur global central banks to shift their reserve holdings from the euro to Canada’s loonie and the Australian dollar, according to BlueGold Capital Management LLP’s Stephen Jen. ‘Anti-Euros’ “As the euro trades lower, central banks, especially those that have been aggressively diversifying away from the dollar into the euro, they must be worried,” Jen, a managing director in London at the hedge-fund firm and former head of global currency research at Morgan Stanley, said at a Euromoney conference in London. Central bank reserve managers will seek “anti-euros out there,” Jen said. Growth-related currencies in raw material-producing countries such Australia and Canada fell as commodities declined. The Standard & Poor’s 500 Index dropped 0.8 percent and the Stoxx Europe 600 Index fell 1.3 percent. The Australian dollar fell to 90.72 U.S. cents, near a five-week low, and Canada’s currency dropped to C$1.0284, the weakest in a month as crude oil for June delivery fell 4 percent and the Reuters/Jefferies CRB Index of 19 raw materials dropped 2.3 percent. Canada gets about half its export revenue from raw materials, while commodities are a majority of Australia’s exports. Conservative Party The pound strengthened against its most-active counterparts and government bonds are rebounding as polls show David Cameron’s Conservative Party, which has pledged to make bigger cuts to the deficit than the ruling Labour Party, may come closest to winning tomorrow’s election. A ComRes Ltd. daily poll shows 37 percent of respondents planning to vote Conservative, 29 percent backing the ruling Labour Party and 26 percent endorsing the Liberal Democrats. That would give the Conservatives 294 seats, 32 short of a majority, ComRes said. A YouGov Plc survey gave 35 percent support to the Conservatives and 30 percent to Labour, up 2 points. The Liberal Democrats slipped 4 points to 24 percent.

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