| GEO Business|
| Euro plumbs 4yr low; tide firmly against risk|
| Updated at: 0825 PST, Monday, May 17, 2010|
SYDNEY: The euro sank to four-year lows on Monday as angst over Europe's debt crisis led investors to pull more money from stocks in favor of havens such as gold and Asian bonds.
So sour was the mood that markets seemed to take scant notice of solid U.S. retail sales and factory output data that suggested the world's biggest economy was steadily healing.
"The market has gone into fear mode, and we're seeing red across the board," said Justin Smirk, chief economist at St George Bank in New Zealand.
The euro fell 0.9 percent from Friday's close to $1.2313 as investors doubted fiscally weaker euro zone nations can tighten their belts, or do so without stunting growth. Charts suggest the currency may extend losses to $1.23, then $1.2190.
With bets against the euro at an all-time high, traders said the currency looked weak as ever although a brief bounce on short-covering in the near term could not be ruled out.
Worryingly, there are signs that anxiety over Europe was squeezing credit markets, mirroring the days of the financial crisis when anxious investors and banks hoarded cash.
The tense mood hammered Asian stocks. Japan's Nikkei .N225 shed 2 percent, and South Korea's stock index lost 2.7 percent, while the MSCI measure of Asia-Pacific markets outside of Japan dropped 3.1 percent, on track for its worse day in over three months.
Shanghai's stock index, among the world's worse-performing stock indices this year due to expectations of monetary policy tightening, fell 2.3 percent.
While there is speculation that China may revalue the yuan in a much-awaited move over the next few days before a China-U.S. summit, choppy markets have led some analysts to argue that China may hold off for now.
The downbeat mood in markets benefitted the U.S. dollar. It's measure against a basket of currencies was strong near 15-month highs at 86.7 .DXY as investors favored the safety of its liquidity.
A stronger U.S. dollar weighed on commodity prices. Oil fell over a dollar to $70.19, and copper futures eased as well.
Underscoring the extent of anxiety in markets, gold was holding up despite the firm U.S. dollar at $1,236.90 an ounce, within earshot of a record high of $1,248.95.
Safe-haven government bonds were also in demand. U.S. Treasuries were mostly up across the curve, while Japanese five-year yields hit five-month lows.
The unease in credit markets is reflected in three-month Libor and Euribor rates, which crept higher after failing to pull back in the wake of the mammoth $1 trillion euro zone aid deal struck a week ago.
The rates, which measure borrowing costs between banks and reflect credit risks, are at eight- and four-month highs respectively.