The euro declined, ending four days of gains, as European leaders seeking to contain the Greece-fueled debt crisis ruled out tapping the European Central Bank’s balance sheet to boost a rescue fund.
The 17-nation currency also weakened as Reuters reported banks offered to write down 40 percent of their Greek debt while politicians are demanding a haircut of at least 50 percent, citing an unidentified banker. The Australian dollar fell on concern an escalation of Europe’s sovereign debt crisis will sap demand for higher-yielding assets.
“Risk sentiment has been hit this morning with markets disappointed by the lack of progress in Europe,” Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia’s second-largest lender, wrote in a note to clients. “Euro has traded lower in early Asia.”
The euro slid 0.4 percent to $1.3842 as of 6:48 a.m. in Sydney, from $1.3896 on Oct. 21 in New York, when it rose 0.8 percent. The 17-nation currency fell 0.4 percent to 105.58 yen.
The dollar fetched 76.26 yen from 76.29 last week, when it fell to a post-World War II low of 75.82. Australia’s dollar weakened 0.5 percent to $1.0322 and slid by 0.5 percent to 78.73 yen.
Europe’s 13th crisis-management summit in 21 months excluded a forced restructuring of Greece’s debt, sticking with the policy of enticing bondholders to accept “voluntary” losses to help restore the country’s finances.
“Work is going well on the banks, and on the fund and the possibilities of using the fund, the options are converging,” French President Nicolas Sarkozy told reporters during a break in the Brussels summit yesterday. “On the question of Greece, things are moving along. We’re not there yet.”
Bank capital needs -- estimated at 100 billion euros ($139 billion) by a person familiar with the deliberations -- will be met first by banks themselves, then by national governments, the European officials agreed. Only when national efforts fail can governments tap the main rescue fund, the 440 billion-euro European Financial Stability Facility, for cash to channel to banks.
Germany pushed through one of its main summit aims, defeating French efforts to bulk up the rescue fund by enabling it to borrow potentially limitless sums from the independent central bank. Policy makers are headed toward using the EFSF to guarantee government bond sales as a way to extend its reach. A second option is to set up an EFSF-insured fund that would seek outside investment in troubled bonds.
A complete blueprint won’t come together until the next summit on Oct. 26.
“Whatever the announcements are in the next few days, Japanese clients were concerned that, if France loses its AAA status as a result of increased state commitments to recapitalize French banks, it will have an adverse impact on how EFSF bonds are viewed in Asia,” Mansoor Mohi-uddin, chief currency strategist in Singapore at UBS AG, wrote in a note e- mailed Oct. 22 and detailing a visit to Japan.
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