May 30, 2012 / 1:32 AM / 5 years ago

FOREX-Euro languishes near 2-yr low on Spain debt woes

* Spanish banking problems overtake worries about Greece

* Focus on rising Spanish debt yields, spreads vs Bunds

By Masayuki Kitano

SINGAPORE, May 30 (Reuters) - The euro fell, nearing a recent two-year low on Wednesday, hurt by worries about Spain’s soaring borrowing costs and expectations that more spending may be needed to support its ailing banks.

The 10-year Spanish government bond yield hit a fresh six-month high on Tuesday, with the sell-off in the country’s debt having driven up their risk premium over safe haven German Bunds to euro-era highs this week.

“It’s as if everything starts and ends with Spain. Everyone is talking about Spain, putting Greece’s problems on the back burner,” said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

“The rise in Spanish-German yield spreads to levels over 5 percentage points is a big factor. The widening in the spread has been significant, and is weighing on the euro against both the dollar and the yen,” he added.

The euro fell 0.3 percent to $1.2468. That was right near Tuesday’s low of $1.2461 hit on trading platform EBS, the euro’s lowest level since July 2010.

Against the yen, the euro dipped 0.3 percent to 99.10 yen , nearing a four-month low of 98.942 yen hit on Tuesday.

The euro’s losses accelerated on Tuesday after Egan-Jones Ratings cut Spain’s credit rating yet again. Tuesday’s move was the small firm’s third downgrade of the country’s sovereign debt in less than a month as Spain’s weak banks continue to worry investors.

The safe haven yen held steady against the dollar, with the greenback fetching 79.50 yen, close to a three-month low of 79.002 yen hit earlier in May.

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