The euro tumbled to a more than three-week low against the dollar and slid versus the yen as rising Italian bond yields stoked concern Europe’s sovereign- debt crisis in deepening. The euro fell to a record low against the Swiss franc as Austria’s Finance Minister Maria Fekter said Italy will be discussed at today’s monthly gathering of euro-area finance ministers. Australia’s dollar weakened on speculation China will take further steps to cool growth, while Norway’s krone fell after inflation in June was less than economists estimated. “It’s really a story of independent euro weakness,” said Adam Cole, head of global currency strategy at Royal Bank of Canada in London. “We are seeing contagion spreading to Italy. The bailout facility as it stands would be nowhere near big enough to deal with Italy.” The 17-nation euro depreciated 1.2 percent to $1.4095 at 7:10 a.m. in New York, after earlier touching $1.4087, the lowest level since June 16. It slid 1.2 percent against the yen, to 113.70, and touched 113.65 yen, the least since June 20. The dollar strengthened 0.1 percent to 80.70 yen. The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against those of six trading partners, advanced 0.7 percent to 75.694. Enlarged Meeting The euro has fallen in four of the past five days after Moody’s Investors Service downgraded Portugal to below investment grade, reigniting concern the region’s debt crisis will spread beyond Greece as officials remain divided over a solution to the crisis. The yield on Italy’s 10-year bond rose as much as 19 basis points today to 5.47 percent, driving the premium over German bunds to a euro-lifetime record of 268 basis points. The difference in yield, or spread, between Spanish and German 10- year securities also reached the highest in the euro era, widening to 308 basis points. A European bailout fund may have to be doubled to 1.5 trillion euros to cover a crisis in Italy, according to the European Central Bank, German newspaper Die Welt reported, citing unidentified “high-ranking” people at central banks. The Financial Times cited unidentified senior officials as saying European leaders are prepared to accept that Greece should default on some of its bonds as part of a new bailout plan for the country that would put its total debt levels on a sustainable footing. European government calls for banks to share in bailing out Greece are a “credit negative” for nations unable to access market funding, Moody’s Investors Service said today. The euro weakened 1.1 percent against the Swiss franc to 1.18022 as investors sought the safest European assets. EU Meeting “Ongoing sovereign concerns are proving to be a real drag on the euro,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “Italy is a very large economy, and if indeed we do see contagion spread toward Italy, then the ECB, EU and IMF will need to come up with a totally different plan to deal with it.” A regular meeting of European Union President Herman van Rompuy and Commission President Jose Manuel Barroso will be enlarged to include ECB President Jean-Claude Trichet, Luxembourg Prime Minister Jean-Claude Juncker and European Economic Commissioner Olli Rehn, said Jesus Carmona, a spokesman for Van Rompuy, in a phone interview yesterday. That will precede the monthly gathering of euro-area finance ministers. Krone, Aussie The Norwegian krone fell versus all but one of its major peers as crude oil prices fell, and after data showed Norway’s underlying inflation rate was 0.7 percent in June, compared with economist estimates in a Bloomberg News survey for a 1 percent rate. Brent oil for August settlement declined as much as 1.6 percent to $116.50 a barrel on the London-based ICE Futures Europe exchange. The data was “much weaker than expected so we see a weaker Norwegian krone right now,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. “These data will lower rate-hike expectations.” Norway’s krone slid 1.4 percent to 5.4889 per dollar, and was 0.3 percent weaker against the euro at 7.7422. The Australian dollar fell for a second day against the greenback on speculation China, its largest trading partner, will increase efforts to tame inflation even as growth cools. Chinese consumer prices increased 6.4 percent in June from a year earlier, the National Bureau of Statistics said on July 9, exceeding the 6.2 percent median estimate of economists surveyed by Bloomberg. The government will say on July 13 that gross domestic product expanded 9.3 percent in the second quarter from a year before, according to a separate survey, down from 9.7 percent the previous quarter. Slowdown Concern “Fears of a possible slowdown in China and also the U.S. are spurring risk aversion and driving the Aussie lower,” said Jim Vrondas, a manager at the online currency dealer OzForex Ltd. in Sydney. The China data “makes it more likely that officials will keep tightening.” The Aussie dollar declined 0.6 percent to $1.0687. The best currency forecasters say the dollar’s more than 12 percent slide over the past year is coming to an end as Europe’s deepening debt crisis discourages bets against the world’s reserve currency. Led by Schneider Foreign Exchange Ltd., the five most- accurate firms during the six quarters through June 30 as measured by Bloomberg see the dollar trading at $1.42 per euro on average by year-end, compared with $1.43 on July 8. Against the yen, they predict the greenback will rise to 83 from 80.64. To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

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