By Lukanyo Mnyanda and Yoshiaki Nohara May 11 (Bloomberg) -- The euro fell for the first time in three days against the dollar on concern that the region’s debt- strapped nations still face widening deficits and slower growth even after leaders unveiled a $1 trillion lending package. Europe’s currency snapped two days of gains versus the yen after Marek Belka, the director of the International Monetary Fund’s European department, said he doesn’t consider the rescue package a “long-term solution.” European Central Bank council member Axel Weber said the bank’s purchase of government bonds poses “significant” risks, Germany’s Boersen-Zeitung reported. The Swiss franc climbed against the euro after Switzerland’s consumer confidence rose to the highest in more than two years. “There are factors that are a burden for the euro which are too obvious to be ignored for longer than one morning,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “The ECB will remain in emergency mode for a prolonged period.” The ECB’s bond purchases will also draw criticism from investors concerned the central bank is compromising its independence, he said. The euro declined to $1.2727 as of 9:17 a.m. in London from $1.2787 in New York yesterday, when it reached $1.3094, the strongest level since May 4. Europe’s currency fell to 117.87 yen from 119.28 yen yesterday, when it rose 2.1 percent. The dollar declined to 92.63 yen from 93.29 yen. The euro is back below the $1.2755 closing level on May 7 before the aid package was announced. The currency will probably end the year at $1.22, Leuchtmann said. Europe’s common currency has lost 7.7 percent this year, based on Bloomberg Correlation- Weighted Indexes. The dollar has gained 5.1 percent and yen has advanced 5.6 percent. Financial ‘Morphine’ Leaders of the 16 European nations using the single currency agreed to lend as much as 750 billion euros ($957 billion) to the most-indebted member countries. The IMF’s Belka told a panel at a World Economic Forum conference yesterday in Brussels he doesn’t see the lending package as a “panacea for European problems. This is some kind of morphine that stabilizes the patient -- and the real medication and the real treatment has to come.” The ECB said yesterday it will counter “severe tensions” in “certain” markets by purchasing government and private debt, adding to signs the central bank will keep interest rates at a record low even as its peers start to raise them. By resorting to what some economists have called the “nuclear option,” the ECB may open itself to the charge it’s undermining its independence by helping governments plug budget holes. ECB President Jean-Claude Trichet said the move wasn’t supported by all 22 of its Governing Council members. Normalization Delay “The purchase of government bonds poses significant stability risks and that’s why I’m critical toward this part of the ECB council’s decision, even in this extraordinary situation,” Weber told Boersen-Zeitung in an interview. “It’s now critical to keep these risks as minimal as possible.” The Bundesbank, which he heads, confirmed the remarks. “There’s no question that the ECB will have to put off a strategy to normalize its monetary policy,” said Kazuyuki Kato, treasury department manager in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest publicly traded lender by assets. “That means the euro won’t easily go back to its level prior to the recent selloff.” Greece may have its credit rating lowered to junk within the next month, Moody’s Investors Service said yesterday, citing the country’s “dismal” economic prospects. Portugal, Ireland Portugal’s rating, which is also on review for a downgrade, will probably be lowered one level to Aa3 from Aa2, though an “adjustment” of two steps to A1 can’t be ruled out, Moody’s said. No “significant” rating action is likely “in the short run” for Ireland, the company said. “We are in little doubt that steps taken, in particular by the ECB, will offer the euro little support and the aid package does not change the fact that Spain and Portugal in particular will still have to undergo further painful austerity measures,” Derek Halpenny, European head of currency research at Bank of Tokyo Mitsubishi UFJ Ltd. in London, wrote in an investor note. European Union Economic and Monetary Affairs Commissioner Olli Rehn told French daily Les Echos in an interview that Spain and Portugal must take immediate steps to improve their public finances. Measures to be taken by the countries will be discussed at the next meeting of European Union finance ministers on May 18, Rehn told Les Echos. The Swiss franc strengthened to 1.4121 against the euro from 1.4193. The State Secretariat for Economic Affairs in Bern said an index based on a quarterly survey of 1,100 households increased to 14 from minus 7 in January. The currency gained against 15 of its most-actively traded peers, strengthening the most against the South African rand. To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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