(Reuters) - The euro slid broadly on Monday, as concern increased that Greece will be forced to restructure its debt and uncertainty over a bailout for Portugal grew.
Rising risk aversion hurt the single currency generally after Standard & Poor's, while affirming the 'AAA/A-1+' sovereign credit rating on the United States, revised their outlook on the long-term rating to negative from stable.
While the dollar fell against the yen on the same risk aversion theme, the impact on the euro was greater because Europe's problems are already manifest. While U.S. fiscal tensions are increasing, the U.S. is far from defaulting on its debt.
"The prospect of an actual default by the US on debt issued in its own currency isn't a realistic worry, in a financial market that has a lot more real worries to deal with (including genuine Eurozone default risks)," said Avery Shenfeld, chief economist at CIBC World Markets in Toronto.
"We are less concerned over a downgrade to the outlook than we are about the growth implications of turning to fiscal belt tightening before the economy has self-sustaining momentum."
The euro was last at $1.4269, down 1.1 percent, with the session low at $1.4248, an 11-day low, according to Reuters data. German government sources said they expected Greece will not make it through the summer without debt restructuring [ID:nBAT006171]
The euro's rise has stalled since it hit a 15-month high
last week, though market players expect it to be supported by prospects of another rise in euro zone interest rates.
Earlier a Greek newspaper reported that Greece had told the IMF and the European Union earlier this month that it wants to restructure its debt, though it pared losses as a finance ministry source in Athens said the story was untrue.
Players also are watching Portugal's progress toward a bailout closely after strong gains in a weekend election by an anti-euro party in Finland that has vowed to veto its rescue package.
Analysts doubted the Finnish vote could do more than slow down a bailout but the result of the vote added to negative euro sentiment, encouraging investors to cut long euro positions.
NEGATIVE OUTLOOK
Standard & Poor's cited very large budget deficits and rising government indebtedness as the reason for the U.S. ratings downgrade with the path to addressing those issues not being clear.
"This is just another reason why investors don't want to own dollars at this point because not only do we have a very sluggish Federal Reserve and lackluster growth, but one of the major ratings agencies have put the U.S. on negative watch," said Kathy Lien, director of research at GFT, New York.
"Even though I don't think an actual downgrade would occur, in this very sensitive or vulnerable time for the U.S. dollar, it's enough to spook investors from holding or buying U.S. dollars."
The last time the US was put on negative watch was in January, 1996 after Republicans refused to vote to increase the debt ceiling, Lien said. However, this was extremely short lived because the outlook was upgraded back to stable in March after the U.S. government raised the debt ceiling.
