The euro tumbled the most in more than a week against the dollar amid renewed concern that the debt crisis in the euro region is spreading to Spain.
The common currency also fell against the yen after El Economista reported that the International Monetary Fund, the European Union and the U\s Treasury are putting together a credit line of as much as €250 billion for Spain.
The report was denied by the EU and the Spanish government. The euro dropped 0.3 per cent to $1.2294 at 10.38 a.m. in London, the biggest daily decline since June 4th based on closing prices. It was at 112.7 yen from 112.78 yesterday in New York.
The euro also declined after it failed to stay above $1.235, a level important to maintain the currency's recent upward momentum, according to BNP Paribas SA. "The rebound we've seen in the euro is purely a correction," said Ian Stannard, an analyst in London at BNP Paribas. "We'll soon head lower again."
Meanwhile, the yield premium investors demand to hold Spanish 10-year government bonds instead of German bunds rose to a euro-era record after the report of IMF aid. The difference in yield, or spread, between the securities widened to 216 basis points, the most since 1997.
The euro earlier rallied as high as $1.2353 after US stocks gained and results from government bond sales in Spain and Ireland renewed optimism that indebted nations can still tap markets for funding.
Meanwhile Portugal's borrowing costs increased at an auction of €718 million of bills due in March 2011. The securities due on March 18 2011 were issued at an average yield of 2.689 per cent, the country's debt management agency said.
That compares with an average yield of 1.046 per cent at the previous auction of March 2011 bills on April 7th. At a May 19th auction, the agency sold nine-month bills due in February 2011 at an average yield of 2.443 per cent.
The auction attracted bids for 1.8 times the amount offered, compared with a bid-to-cover ratio of 2.8 in the April sale and 2.3 in the May auction.
The IGCP, as the debt agency is known, on June 9th said the indicative amount for today's auction was €600 million.
The increase in borrowing costs for Portugal comes a day after Spain and Ireland saw strong demand for government bonds, although both were forced to pay a higher interest premium.