| GEO Business | | Euro steadies after Spain downgrade | Updated at: 0854 PST, Monday, May 31, 2010
 HONG KONG: The euro steadied on Monday but remained under pressure after Fitch downgraded Spain's credit rating and France said keeping its top credit rating may be a stretch without tough budget cuts.
The European single currency is on track for a hefty 7.7 percent drop against the dollar in May on nagging worries that Greece's debt crisis will spread to other countries in the euro zone, stunting the global economic recovery.
The decline would be the euro's sixth straight monthly fall and its biggest percentage drop since January 2009.
Asian stocks were little changed but looked set to post their worst month since October 2008 as Europe's sovereign debt woes made investors reluctant to hold riskier assets such as stocks and commodities.
"The market is susceptible to negative news and small rallies in the euro on short-covering don't last for long," said a trader at a Japanese bank.
"This jitteriness in the market is likely to continue for a while, and it is difficult to see a recovery in market sentiment as there are worries that further bad news about southern European countries may come out," he said.
Investors may avoid building up positions as the United States and the UK are on holiday on Monday, though some month-end flows may be seen in the market, traders said.
The euro was steady at $1.2282, staying above a four-year low of $1.2143 hit this month.
The currency fell 0.8 percent on Friday after Fitch cut Spain's credit rating by one notch to AA-plus, saying the country's economic recovery will be "more muted" than the government forecast due to its austerity measures.
Underscoring worries about regional debt pressures, France admitted on Sunday that keeping its top-notch credit rating would be "a stretch" without some tough budget decisions, following German hints that Berlin may resort to raising taxes to help bring down its deficit.
Traders are awaiting manufacturing surveys from Europe, Britain, China and the United States on Tuesday which may provide the first detailed look at whether May's market mayhem inflicted any serious damage on the global recovery.
The MSCI index of Asia Pacific stocks outside Japan rose 0.3 percent, but was on track for a loss of more than 11 percent for May, its worst month since the aftermath of the Lehman Brothers collapse
Japan's Nikkei slipped 0.2 percent as falling commodities prices hit shares of trading firms, offsetting gains in exporters as the yen fell against the dollar and the euro.
Market players said the impact of Spain's rating cut on the broader market was limited for now, noting that many analysts had expected the move and only the timing was a surprise.
"While Fitch did cut Spain's rating, S&P did the same thing in April, so it's not as if the move was all that new," said Takashi Ushio, head of the investment strategy division at Marusan Securities.
"There's the sense that the Nikkei may be about to start a bit of a rebound. It's held up quite well even though Wall Street fell. But gains will definitely be capped around 10,000 for now."
Shanghai copper prices ticked lower, on track for a 5 percent monthly fall after London futures saw their weakest monthly performance since January on worries about euro zone debt.
Crude oil futures prices rose half a percent to above $74 a barrel in thin trade, after posting their worst monthly loss since December 2008 on worries that a setback in the global recovery would hurt energy demand. |  |
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