The euro declined, approaching a two- week low against the dollar, as a European Union document on bank stress tests deepened concern that the region’s debt crisis may intensify. The euro also dropped against the yen as an internal EU document dated July 7 and obtained by Bloomberg News said banks that fail this year’s round of tests may need to present plans for making up their capital shortfall by the end of September. Governments should be ready to step in and help banks as a last resort, according to the preliminary document, which was prepared by government officials from the 27-nation region. “It is the recognition that there will be more pressure on local governments to prop up their banking systems,” that’s weakening the euro, said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “German Landesbanken and Spanish banks are considered the major pressure points.” The euro depreciated 0.8 percent to $1.4254 as of 11:25 a.m. in London, extending its weekly decline to 1.9 percent. The 17-nation shared currency slid 0.6 percent to 115.98 yen, while the dollar rose 0.1 percent to 81.36 yen. The euro headed for its biggest weekly drop in a month, even after the European Central Bank yesterday raised its benchmark rate by 25 basis points to 1.5 percent. Greek, Portuguese, Irish, Italian and Spanish government bonds slumped amid speculation that the 17-member currency region will see its first sovereign default. ‘Acute’ Crisis Phase “We have moved onto a more acute phase of the sovereign- debt crisis judging by the intensity of the rise in peripheral bond yields and the widening of the spreads,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “The market is looking for excuses to sell the euro. The market is desperate to find excuses that these ECB rate hikes are making things worse, not better.” The U.S. currency strengthened against most of its 16 major counterparts tracked by Bloomberg before data forecast to show the world’s largest economy added jobs for a ninth month. Nonfarm payrolls increased by 105,000 in June after an advance of 54,000 in the prior month, according to the median estimate of 85 economists in a Bloomberg News survey before today’s report from the Labor Department. The unemployment rate probably stayed at 9.1 percent, according to a separate survey. Estimates in Bloomberg’s poll range from 40,000 to 175,000. Companies added twice as many workers as forecast last month, a report by ADP Employer Services showed yesterday. The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, advanced 0.4 percent to 75.28. To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

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