NEW YORK—Renewed fears about Europe's debt crisis hit the euro Friday, squelching a rally touched off by encouraging U.S. payrolls data.
As rumors of an imminent downgrade of Spain's sovereign credit rating swirled, analysts also cited a report on the Hill.com's website that congressional Republicans would seek to block any U.S. funds from contributing to a potential infusion of cash into the euro zone by the International Monetary Fund.
Traders and analysts say uncertainty surrounding the region's debt crisis remains high. As a result, news that the U.S. unemployment rate tumbled below the 9% level failed to mollify investors. In late-morning trading, the euro fell as low as $1.3363 before rebounding modestly. The common currency was down more than half a percent on the day and well below session highs at $1.3550.
Investors are also turning cautious ahead of next week's summit of European Union leaders and the European Central Bank's rate decision, analysts said. That helped the dollar get a broad boost on safe-haven buying, with traders fleeing the uncertainty of the euro zone.
In recent trade, the euro fell to $1.3371 from $1.3461 late Thursday. The dollar was at ¥77.89 from ¥77.70 late Thursday. The U.K. pound was at $1.5587 from $1.5690, while the dollar bought 0.9226 Swiss franc from 0.9157 franc.
The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 78.68, up 0.5%.
Risk-sensitive currencies such as the Australian dollar also suffered. The Aussie was recently trading at $1.0214 from $1.0243 late Thursday.
Investors were taking profits on the euro's rise above $1.35 against the dollar seen earlier in the session, said John Doyle, a trader at Tempus Consulting.
The euro also weakened against the Japanese yen, falling to ¥104.18 from ¥104.61 late Thursday.
Earlier, the dollar was lower against the euro and gained modestly against the Japanese yen after key U.S. jobs data showed signs of continued recovery in the U.S. economy.
The dollar rose to ¥78.04 from ¥77.82 shortly before the report, though it later lost some momentum. The common currency retreated from early gains after trading at $1.3519 shortly before the data.
The nonfarm payrolls report, a critical indicator for the strength of the U.S. economy, showed a gain of 120,000 jobs in November, not quite reaching market expectations for a 125,000 increase. But the unemployment rate ticked lower to 8.6% from 9% the previous month, further stamping out fears that the economy is stalling, after a string of stronger-than-expected U.S. economic data this week.
"On balance it's a good number, consistent with a lot of U.S. economic reports" which have surprised to the upside, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, Inc.
Against other riskier currencies, the dollar remained soft. The dollar fell below ZAR8.00 against the risk-sensitive South African rand, while the Australian dollar gained about 0.3% against the U.S. currency.
Earlier in the global day, the euro ticked higher as French and German political leaders suggested they share common ground on forging a closer euro-area fiscal unity.
Speaking after French President Nicolas Sarkozy on Thursday pledged a raft of reforms and threw his weight behind efforts to set up a fiscal union, German Chancellor Angela Merkel on Friday made an urgent appeal for decisive political action to fix the root of the euro-zone debt crisis.
Sterling struggled against the greenback despite U.K. construction purchasing managers index data for November coming in slightly above market consensus at 52.3.
