The euro fell, extending a monthly loss against the dollar and yen, after Standard & Poor’s cut Spain’s sovereign debt rating, adding to concern the region’s financial woes are spreading. S&P downgraded Spain’s long-term credit rating two levels to BBB+ yesterday from A, saying the outlook is negative as the country’s recession undermines efforts to cut the budget deficit. Australia’s dollar halted two days of gains as traders bet that the Reserve Bank will cut interest rates next week. “It does look as if the Spanish crisis is set to get worse before it gets better,� said Mike Jones, a currency strategist at Bank of New Zealand in Wellington. “The knee-jerk reaction from the euro to the downgrade has been to the downside. It’s also taken some of the heat out of investors’ risk appetite.� The euro fell 0.1 percent to $1.3202 at 12:41 p.m. in Tokyo from the close in New York yesterday, poised for a 1.1 percent loss this month. The common currency slid 0.2 percent to 106.84 yen, having weakened 3.4 percent in April. The yen added 0.1 percent to 80.90 per dollar, after climbing 0.4 percent yesterday. Jones sees the euro weakening to $1.29 by the end of June. The so-called Aussie slipped 0.1 percent to $1.0379, after advancing 0.7 percent over the previous two days. It has gained 0.3 percent this month. Spain’s 10-year borrowing costs have climbed about 70 basis points this year as Prime Minister Mariano Rajoy struggles to convince investors he can control public finances amid soaring unemployment and a contracting economy. Banks threaten to disrupt the premier’s efforts as bad loans reach the highest levels in almost two decades. “Spain’s budget trajectory will likely deteriorate against a background of economic contraction,� S&P wrote in a statement. “At the same time, we see an increasing likelihood that Spain’s government will need to provide further fiscal support to the banking sector. As a consequence, we believe there are heightened risks that Spain’s net general government debt could rise further.� 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: Rocky Swift at rswift5@bloomberg.net

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