Euro edges higher but EU debt fears weigh

TOKYO: The euro clawed back ground in Asia on Tuesday after overnight declines as Germany tempered expectations that an upcoming European Union summit would deliver a solution to the region's debt problems.

The euro edged up to $1.3777 in Tokyo trade from $1.3734 in New York late Monday. The European single currency edged up to 105.87 yen from 105.51 yen.

The dollar stood at 76.84 yen, almost flat from 76.82 yen.

"The currency market is likely to settle into a holding pattern ahead of the EU summit this coming weekend," said Credit Agricole's Daragh Maher in a research note.

"But it remains an environment in which we believe the risks for the (euro) are skewed to the downside."

The market reacted little after ratings agency Moody's warned France Monday that it may place a negative outlook on its Aaa credit rating in the coming months as the government's financial strength "has weakened."

The euro's downside was supported by position adjustments after falling overnight as Germany sought to dampen expectations for next Sunday's EU summit in Brussels, dealers said.

Government spokesman Stefan Seibert warned that "dreams that everything will be resolved and dealt with by next Monday cannot be fulfilled."

Meanwhile Finance Minister Wolfgang Schaeuble said that decisions would be part of "important measures to be taken over the long term, and this long term is likely to last into next year."

The tone was a marked change from the weekend when, speaking after a meeting of G20 finance ministers and central bankers in Paris, French Finance Minister Francois Baroin said the eurozone answers at the summit would be "decisive".

Dashed expectations sent stock markets lower in Europe and Wall Street.

Gen Kawabe, senior dealer at Chuo Mitsui Trust and Banking, said: "The market is back again in a mood that the problems would not be resolved anytime soon."

Risk appetite was also dented by data showing China's economy grew at a slower pace in the third quarter, as government efforts to tame inflation and the turmoil in Europe and the United States curbed activity.

Gross domestic product in the world's second-largest economy grew 9.1 percent year-on-year in the third quarter, the National Bureau of Statistics said, compared with a 9.5 percent year-on-year expansion in the previous quarter. (AFP)