The euro cut broad early gains on Wednesday as concerns over the single currency bloc's economy and public finances mounted ahead of Thursday's verdict on interest rates from the European Central Bank. The euro had earlier hit session highs on a tentative easing in extreme risk aversion but reports, later denied, that Ireland might need IMF help if its economy worsened took it down more than a cent from those levels. Data showed Germany's economy grew at its slowest pace in three years in 2008. More pointedly, the euro zone's biggest economy had contracted by between 1.5 percent and 2.0 percent in the final three months of the year, the largest fall since German reunification in 1990. "The weakness in the data brings home concern around the lack of policy stimulus. We'll see what the ECB brings tomorrow, but the concern is that the data is looking worse for wear," said Phyllis Papadavid, currency strategist at SG in London. The euro stumbled after reports Irish Prime Minister Brian Cowen said IMF help may be needed if its economic downturn worsens, although the comments were later denied. [ID:nLE684175] But Cowen told Irish broadcaster RTE in an interview he endorsed the view of the country's unions that public finances are unsustainable. [ID:nDUB000777] "Even with the denial, I think the markets are likely to conclude that there's no smoke without fire," said Derek Halpenny, European head of global currency research at BTM UFJ in London. Indeed, the cost of protecting Irish government bonds against default rose sharply with the five-year credit default swap hitting 207.5 basis points from 193.1 basis points, according to data from CMA DataVision. By 1219 GMT, the euro was up 0.1 percent at $1.3218, more than a cent off a session high of $1.3335 . That was still above a one-month low of $1.3140 on trading platform EBS the previous day.

Source