Euro buffeted by Italian worries

TOKYO: The euro remained under pressure in Asian trade Thursday as deepening investor fears over political instability in Italy and Europe's ability to contain its debt crisis weighed in sentiment.

The euro bought $1.3543 and 105.33 yen, nearly unchanged from $1.3544 and 105.38 yen in New York Wednesday, but at one point fell to $1.3513 before rebounding.

The dollar stood at 77.77 yen, flat from 77.78 in New York.

Renewed selling pressure on the euro came as Italy's 10-year government bond yield shot up to 7.4 percent, a level regarded as unsustainable for the finances of the eurozone's third-largest economy.

The surging yields brought back into focus the prospect that Europe's problems could tip the global economy into a double-dip recession amid concerns that Italy is too big to bail out.

"The eurozone looks horrible," said RBS head of domestic sales trading and execution, Justin Gallagher in Sydney. "Italy is the elephant in the room and their 10-year bonds going above 7 percent is a major shock."

Even though Prime Minister Silvio Berlusconi has pledged to resign once credible economic reforms are in place, markets remain spooked.

Investor focus has moved from Greece to Italy, and our sentiment on the euro is even worse," said Osao Iizuka, head of currency trading at Sumitomo Trust & Banking.

Asian currencies slipped in favour of the safe-haven greenback as investors abandoned risk in the face of the eurozone crisis.

The Australian dollar fetched US$1.0121, down from US$1.0351 late Wednesday. The greenback rose against its Singapore counterpart to Sg$1.2935 from Sg$1.2730 on Wednesday.

The dollar also rose against the Korean won, climbing above 1,135.00 won from 1,117.40.

"In the past cases of Greece, Ireland and Portugal, they have knocked on the door of the European Financial Stability Facility when their 10-year bond yields surpassed 8-percent," said Junya Tanase, chief FX strategist for JPMorgan.

"We need to monitor whether Italy will follow the same path," he said.

The sharp rise of the Italian bond yields drove down global stocks, with Tokyo's Nikkei index ending the morning session down 2.35 percent at 8,549.94 and Hong Kong 4.50 percent lower at 19,144.96 in mid-morning trade. (AFP)