By William L. Watts and Virginia Harrison, MarketWatch
FRANKFURT (MarketWatch) — The dollar extended gains against most major currencies on Tuesday, as equities weakened amid continuing worries about Europe's debt crisis.
Moody’s Investors Service cut the outlook on its triple-A credit ratings for Germany, the Netherlands and Luxembourg to negative after the U.S. market closed Monday.
The ratings firm cited expectations that the continuing crisis will result in those countries taking on a growing burden as policy makers struggle to deal with growing problems in Spain and Italy. Read more on the Moody's downgrades.
“The chief concern is whether or not Europe, the [International Monetary Fund and the European Central Bank] can afford to bail out Spain, and maybe even Italy,” said Kathleen Brooks, research director at Forex.com.
“It is still unknown whether or not the euro zone could survive if its fourth largest economy collapsed, and this is likely to weigh on markets for some time.”
European shares traded lower, with U.S. stock index futures pointing to a lower start for Wall Street.
The euro EURUSD -0.2658% fell to $1.2086 from $1.2133 in North America late Monday.
The purchasing managers' index for the euro zone stayed unchanged in July, signaling a sixth straight month of contracting private-sector activity across the region. Euro-zone July PMI unchanged at 46.4
The British pound GBPUSD +0.1383% trimmed a loss to trade at $1.5528, up slightly from $1.5523 in North America late Monday.
The ICE dollar index DXY +0.15% , which measures the greenback against a basket of six major currencies, climbed to 83.835 from 83.640 in North America late Monday.
Against the Japanese currency, the dollar USDJPY -0.1284% edged down to ÂĄ78.25, from ÂĄ78.38 in North American trade late Monday.
Meantime, China welcomed some positive data as HSBC reported that its initial monthly reading of the nation’s manufacturing activity hit a five-month high, though the sector remained in contraction. Read more on China's HSBC flash PMI.
The result gave the Australian dollar AUDUSD +0.2630% a mild boost, with the risk-sensitive unit trading at $1.0284 against $1.0279 in North America trading late Monday.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.
Virginia Harrison is a MarketWatch reporter based in Sydney.
