NEW YORK (Reuters) - The euro retreated against most currencies on Monday, hitting a 3-1/2-year low against sterling and a six-week low versus the yen, as investors fretted about the delay in mobilizing bailout funds for troubled euro zone states. The euro zone's common currency slipped against the dollar, losing in four of the last five session, although falls were mitigated by poor U.S. retail sales data in June. The report bolstered expectations about another round of quantitative easing from the U.S. Federal Reserve, which spurred dollar selling against the yen. Investors will therefore closely watch testimony by Fed Chairman Ben Bernanke this week for hints about U.S. monetary policy action. Ahead of that, the downtrend for the euro remained intact on Monday. "The euro's losses were mainly a result of the uncertainty surrounding the bailout fund due to court issues. The implementation of that fund just keeps getting pushed back," said Greg Moore, currency strategist at TD Securities in Toronto. Germany's Constitutional Court said on Monday it would not rule until September 12 on whether the euro zone's bailout fund -- the European Stability Mechanism -- and planned changes to the region's budget rules are compatible with German law. But the euro trimmed losses after an unexpected contraction in U.S. retail sales last month. Retail sales fell 0.5 percent last month where economists had expected a gain of 0.2 percent. Ex-autos, sales dropped 0.4 percent. "The poor reading on retail sales will have forecasters, including CIBC, nudging down already mediocre estimates for second-quarter growth," said Avery Shenfeld, chief economist at CIBC World Markets in Toronto. "The soft patch in the U.S. economy looks just a bit softer after today's news. Negative for cyclical equities, a plus for fixed income," he added. In early New York trading, the euro slipped 0.1 percent against the dollar to $1.2239. It fell as low as $1.2173, not far from a two-year low of around $1.2160 hit last week, although it recouped some of It fell to 78.41 pence against sterling, its weakest since late 2008, but was last at 78.39 pence, down 0.3 percent. The euro also dropped to 96.14 yen, its lowest since June 1, and hit a record low against the Canadian dollar. A report suggesting a change in the European Central Bank's stance on how some bondholders could be treated under Spain's bank bailout added to pressure on the common currency. Investors have stepped up sales of the euro, disheartened by a lack of progress towards solving the bloc's spiraling fiscal crisis. A report in the Wall Street Journal said ECB President Mario Draghi advocated imposing losses on holders of senior bonds issued by the worst-hit Spanish savings banks. The ECB declined to comment on the report, which said finance ministers rejected the advice due to concerns financial markets would react badly to such a decision. The dollar slid 0.5 percent against the yen to 78.78 yen, adding to losses after the soft U.S. retail sales data. Investors could further sell the dollar if Bernanke hints in testimony on Tuesday and Wednesday at the possibility of more quantitative easing to boost the U.S. economy. The Fed last month expanded efforts to keep long-term interest rates low by saying it would buy an additional $267 billion in long-dated bonds while selling short-term securities, but it held off from a third round of outright bond purchases. (Additional reporting by Michale Szabo in London; Editing by James Dalgleish)

Source