The euro fell to a decade low versus the yen amid concern the European Central Bank will continue to inject cash into the financial system to stave off a credit crunch from the region’s debt crisis. The single currency dropped against most of its major counterparts after the central bank said yesterday its balance sheet soared to a record after last week’s lending to banks in the region. The 17-nation currency declined to the weakest level since January against the dollar as Italy prepares to sell as much as 8.5 billion euros ($11 billion) of notes due from 2014 to 2022 today. The Australian dollar slid to a one-week low as stock losses worldwide damped demand for higher yields. “The ECB, for the foreseeable future, will not drain liquidity once per month as it always has done,� said Robert Rennie, Sydney-based chief currency strategist at Westpac Banking Corp., Australia’s second-largest lender. “It gives you greater confidence that this is more formal quantitative easing. Both on an outright and a cross basis, the risks still do lie to the downside for the euro.� The euro dropped 0.3 percent to 100.58 yen as of 10:47 a.m. in Tokyo from New York yesterday, after touching 100.36, the lowest since June 2001. The shared currency bought $1.2921 from $1.2941, after falling to as low as $1.2888, the weakest since Jan. 10. The dollar was little changed at 77.85 yen. The Australian dollar declined 0.1 percent to $1.0081, after weakening to $1.0044, the least since Dec. 20. The MSCI Asia Pacific Index of shares lost 0.7 percent today. The MSCI World Index of stocks and the Standard & Poor’s 500 (SPX) Index both dropped 1.3 percent yesterday. ECB Balance Sheet The ECB’s balance sheet expanded to a record 2.73 trillion euros. Lending to euro-area banks jumped 214 billion euros to 879 billion euros in the week ended Dec. 23, the Frankfurt-based ECB said in a statement yesterday. The central bank last week awarded 523 banks three-year loans totaling a record 489 billion euros to encourage lending to companies and households and prevent a credit shortage. ECB policy makers have resisted calls to step up their government bond purchases to cap borrowing costs in Europe’s peripheral nations, choosing instead to grease the region’s financial system with unlimited cheap loans. Italy sold 9 billion euros of 179-day bills at a rate of 3.251 percent yesterday, down from 6.504 percent at the previous auction of similar-maturity debt on Nov. 25. It also sold zero- coupon notes due in September 2013 at a yield of 4.85 percent, versus 7.81 percent in November. ‘Truly Frightening’ The nation expects to raise almost 450 billion euros from debt sales next year, enough to cover 202 billion euros of maturing bonds and finance a 23.6 billion-euro deficit, Maria Cannata, director of public debt, said in a Dec. 24 interview with newspaper Il Sole 24 Ore. “The funding requirement, at least based off known redemptions for Italy through the first quarter, is truly frightening,� Westpac’s Rennie said. The euro has depreciated 1.7 percent this year against nine developed-nation counterparts as Europe’s debt crisis intensified, according to Bloomberg Correlation-Weighted Currency Indexes. The dollar has advanced 1.8 percent and the yen has gained 4.8 percent. To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net; To contact the editor responsible for this story: Naoto Hosoda at nhosoda@bloomberg.net

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