* Euro falls on signs debt crisis may hit banking system
* Dollar index at 15-mth high as risk sentiment deteriorates
* Euro zone, China growth concerns weigh heavily
(Adds detail, updates prices)
By Neal Armstrong
LONDON, June 1 (Reuters) -The euro fell to a 4-year low
against the dollar on Tuesday as signs the euro zone's debt
crisis is spreading to its banking system hit the single
currency, while deteriorating sentiment supported the greenback.
Rising Middle East tensions following Israel's storming of
aid ships bound for Gaza fuelled safe-haven demand for the
dollar, with tepid Chinese data also hurting risk appetite.
"Disappointing Chinese data and Middle East tensions are
favouring the dollar today," said Audrey Childe-Freeman,
currency analyst at Brown Brothers Harriman.
The European Central Bank warned on Monday that euro zone
banks faced up to 195 billion euros in a "second wave" of
potential loan losses over the next 18 months due to the
financial crisis, and said it had increased purchases of euro
zone government bonds. []
"We're seeing follow-though selling after the ECB warning,"
said ING FX strategist Tom Levinson, noting the closure of the
UK and U.S. markets on Monday had delayed the impact of the
warning.
At 1135 GMT, the euro was trading around 1.2 percent lower
versus the dollar <EUR=> at $1.2165 after dropping to a
four-year low of $1.2112.
Traders said stop-losses were targeted under the previous
low at $1.2143, while technical analysts highlighted a break
below key support at $1.2135, the 50 percent retracement of the
2000-2008 rally.
A daily close below $1.2135 was key for further downside
potential, while options traders noted significant barrier
interest at $1.2000.
The closed Monday with its sixth consecutive monthly
decline, the longest losing sequence the single currency has
experienced since 1999, just after its inception.
Growth concerns were heightened as euro zone manufacturing
activity expanded in May at a considerably more sluggish pace
than April's 46-month high, a survey showed. []
Versus the yen, the euro traded with losses of around 1.5
percent at 110.50 yen. It also slipped to an 18-month low versus
sterling <EURGBP=D4> of 83.35 pence.
"The euro is still reacting to negative issues," said Ian
Stannard, currency strategist at BNP Paribas, with Spain's
ratings downgrade last week also weighing.
Fitch cut Spain's credit ratings to AA+ from AAA on Friday,
saying its economic recovery would be more muted than the
government forecast. []
RISK AVERSION
The Australian dollar was knocked after approvals for
building new homes dived in April, backing bets the Reserve Bank
would not raise interest rates again soon. []
The RBA held rates at 4.5 percent but traders watching for
hints it might hold rates steady for the coming months only got
a statement saying that policy was appropriate for the near
term. []
The Australian dollar <AUD=D4> slipped around 1.6 percent to
trade at $0.8320.
China's official purchasing managers' index fell to 53.9 in
May from 55.7 in April. Australia's heavy reliance on trade with
China makes it sensitive to Chinese indicators.
The dollar was up around 0.7 percent versus a currency
basket <.DXY> at 87.212, after moving to its highest level since
March 2009 at 87.473. European equity markets <> traded
down around 1.7 percent and U.S. equity futures <SPc1> pointed
to a negative open.
Sterling managed to outperform versus the dollar <GBP=D4>,
to trade up 0.2 percent on the day at $1.4585 on expectations
that Prudential's audacious big for AIG's Asian life insurance
group may be withdrawn.
