By Ben Levisohn and Paul Dobson May 13 (Bloomberg) -- The euro fell for a third day versus the dollar as Portugal announced austerity measures, spurring concern that fiscal tightening across Europe will limit economic growth. The 16-nation currency fell against most of its most-traded counterparts as signs the global economic recovery is gaining momentum improved the outlook for exporters and spurred demand for assets linked to growth. The dollar fell versus the yen after a report showed initial jobless claims declined less than economists forecast. “There continues to be a lot of bearish sentiment versus the euro,” said Amelia Bourdeau, a currency strategist in Stamford, Connecticut, at UBS AG. “People are questioning whether the European budget cuts can actually be implemented and whether gross domestic product will fall quite precipitously, while other economies continue to grow.” The euro slid 0.4 percent to $1.2565 at 10:01 a.m. in New York, from $1.2614 yesterday. It touched $1.2529 on May 6, the lowest level since March 2009.It traded at 116.70 yen, from 117.62. The yen was at 92.83 per dollar, from 93.24 yesterday. Tax Increases Portugal lowered its budget-deficit goal for 2011 to 4.6 percent and approved tax increases and spending cuts. The government maintained a 7.3 percent deficit target for 2010, Prime Minister Jose Socrates said today in a press conference in Lisbon. Last year’s deficit was 9.4 percent of gross domestic product. Yesterday Spain announced plans to reduce the deficit to 6 percent of GDP in 2011 from 11.2 percent last year, the largest two-year cut since at least 1980. Spanish trade union UGT called a public sector strike for June 2, newspaper El Economista reported, citing the union. The Maastricht Treaty stipulates that EU states should keep their budget deficits within 3 percent of gross domestic product. Europe’s common currency has dropped 1.2 percent against the dollar this week following the EU’s plan to shore up the region’s finances. The package includes a pledge from the European Central Bank to buy government and private bonds to stem a surge in borrowing costs among so-called peripheral nations such as Greece, Spain and Portugal. “Sentiment is just overwhelmingly negative for now,” said Geoffrey Yu, a currency strategist at UBS AG in London, citing the sovereign debt crisis. Some central banks may have cut purchases of euros today, according to Stuart Thomson, who helps manage the equivalent of about $100 billion at Ignis Asset Management in Glasgow. “The ECB is on its way to quantitative easing, its reputation was damaged over the weekend, and the support it had been getting from central banks wasn’t spotted this morning,” said Thomson. “Central banks are normally in supporting the euro but they haven’t been seen today.” Money Supply ECB President Jean-Claude Trichet said on France’s LCI TV yesterday that the decision to buy bonds won’t increase money supply. Executive Board member Jose Manuel Gonzalez-Paramo is scheduled to speak today at a conference in Valencia, Spain. The euro may drop back to its January 1999 starting level of $1.18 by next month as widening deficits in the EU undermine the single currency, according to Sumitomo Mitsui Banking Corp. The euro’s emergence as an alternative reserve currency to the dollar is in doubt because none of the European member states “follow budget deficit rules set by the Maastricht Treaty,” said Daisuke Uno, chief strategist at Sumitomo, a unit of Japan’s third-largest banking group. The treaty stipulates that EU states should keep their budget deficits within 3 percent of gross domestic product. ‘Time Has Come’ “The time has come to reconsider the status of the euro,” Uno said. “The currency needs to go back to the drawing board and start over.” Initial jobless claims fell by 4,000 to 444,000 in the week ended May 8, higher than the median forecast of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. Asian currencies strengthened after Malaysia’s central bank raised interest rates for the second time this year, judging that risks stemming from low borrowing costs are greater than any possible impact from Europe’s debt crisis after the economy grew faster than expected. The nation’s gross domestic product increased 10.1 percent in the three months ended March 31 from a year earlier, the most in a decade. Malaysia’s ringgit climbed 0.2 percent to 3.1975 per dollar, from 3.2045 yesterday. South Korea’s won rose 1.4 percent to 1,128.10 per dollar. Australia’s dollar gained 0.5 percent to 89.80 U.S. cents and 0.1 percent to 83.42 yen after Australian employers added 33,700 jobs in April, the statistics bureau reported in Sydney today, fuelling speculation that the Reserve Bank of Australia will keep raising interest rates to restrain inflation. Economists surveyed by Bloomberg News forecast a 22,500 gain. “The strong Australian labor market supports our view that the RBA hiking cycle is not yet over,” currency strategists at Credit Suisse Group AG, including Ray Farris in London and Daniel Katzive in New York, wrote in a note to clients today. “We continue to forecast the Australian dollar at 97 U.S. cent in three months.” To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net

Source