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EURO WEAKENS, GREEK BONDS SLUMP ON FUNDING CONCERN

By NBF NEWS

The euro weakened and Greek bonds plunged as the 10-year yield premium to German debt widened to the most since the euro's introduction a decade ago, reaching almost four percentage points, on concern that the European Union's rescue plan for the nation may unravel. United States stocks fell and copper retreated from a 20-month high in New York.

The euro dropped against 15 of its 16 most-traded peers at 10.01am in New York, while the United Kingdom currency declined against 12. Greek 10-year bond yields climbed above seven per cent for the first time in 10 weeks.

Australia's dollar advanced after the central bank raised its target rate for overnight borrowing. The Standard & Poor's 500 Index declined by 0.3 per cent, and copper slipped by 0.2 per cent in New York, Bloomberg News reported on Tuesday.

The euro depreciated after Market News International said Greece might want to bypass International Monetary Fund involvement in a rescue package. The Reserve Bank of Australia's increase was the fifth in six meetings, adding to evidence world growth is rebounding after the US said on April 2 that employment expanded by the most in three years.

The report that Greece 'is not keen on the IMF being involved in any bailout would seem to throw the whole plan into question,' Chief Currency Strategist, Bank of New York Mellon Corporation, London, Mr. Simon Derrick, said. 'As an investor, do you really want to hang around and see what is happening next? The Greece story is definitely a negative for the euro,' he added.

The euro lost 1.4 per cent against the yen and 0.8 per cent compared with the dollar after market news cited unidentified officials as saying that Greece might seek a rescue package that did not involve the IMF. European Union spokeswoman, Ms. Amelia Torres, said the EU wouldn't comment on the report.

A Greek Finance Ministry official, responding to the Market News report, said the government was not pushing to renegotiate the terms of a potential rescue package to exclude IMF involvement. The government still backed the agreement announced last month after a summit of EU leaders who called for the IMF to play a central role in any aid package, the official, who declined to be identified, said.

Greek bonds fell for a third day, with the yield on the two-year note rising 1.3 percentage points to 6.41 per cent. Credit-default swaps on Greek debt rose by 7.5 basis points to 353.5, the highest level in five weeks, according to CMA DataVision prices.

The Australian dollar strengthened by one per cent versus the euro and 0.2 per cent against the US dollar after Central Bank Governor, Mr. Glenn Stevens, increased the overnight cash rate target to 4.25 per cent from four per cent. The Canadian dollar traded at parity with the US currency for the first time since July 2008.

The pound weakened by 0.9 per cent versus the dollar, and the yield on the 10-year gilt climbed by six basis points to 3.98 per cent on concern that the election, which UK Prime Minister Mr. Gordon Brown, announced on Tuesday would be held on May 6, won't produce a clear winner.

US equities dropped after a year-long rally drove the S&P 500 to an 18-month high, pushing the benchmark gauge to the most expensive level this year at about 19 times reported operating earnings of its companies. Figures on Tuesday showed growth in US service industries and home sales, adding to evidence the economy was strengthening after the government last week reported the biggest monthly jobs growth in three years.


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By: Alex James