* Euro falls broadly on news of hitch in WestLB rescue
* EUR/USD breaks below key technical support
* U.S. deficit reduction plans unlikely to boost dollar
(Adds comment, detail, updates prices)
By Neal Armstrong
LONDON, Feb 14 (Reuters) - The euro slipped to a three-week
low against the dollar on Monday, hit by reports that rescue
plans for ailing lender WestLB were under threat, and with euro
zone peripheral debt concerns keeping investors on edge.
Aid for WestLB hangs in the balance, a source told Reuters
on Monday, as the bank struggles to come up with a rescue deal
ahead of presenting a restructuring plan to the European
Commission. []
"The WestLB news doesn't provide a great deal of optimism to
the euro at the start of the week," said Jeremy Stretch,
currency strategist at CIBC.
"Structural negatives in the euro zone haven't gone away,
and some of those risks are due to the banking sector. WestLB's
problems are a reflection of that."
The euro <EUR=> slipped to $1.3447 with selling coming
largely from eastern-Europe in the aftermath of the news,
hitting its weakest since late January.
The move triggered stop-losses on the break of $1.3500,
taking the euro below support at $1.3483, the 38.2 percent
retracement of its rally from January to February. It was also
trading back below its 100-day moving average which comes in at
$1.3541.
A 0.3 percent quarterly contraction in the Portuguese
economy at the end of 2010, and a slight monthly fall in euro
zone industrial production in December kept euro sentiment
sluggish, although the separate figures were largely in line
with forecasts. [] []
Spanish bond auctions will be a focus for euro zone
investors on Thursday, while investors await details of a
European debt rescue fund next month.
"Concerns about a European debt rescue plan will remain in
place until March, and that is definitely a risk for the euro,
particularly when you consider the peak redemption for
Portuguese and Spanish bond redemptions in Q1," said Sven
Schubert, currency strategist at Credit Suisse in Zurich.
Benchmark government debt yields in Portugal <PT10YT=TWEB>
have climbed around all-time highs above 7 percent, which market
participants consider to be dangerously high in a country many
believe may be forced to appeal for a bailout.
U.S. DEFICIT REDUCTION
President Barack Obama proposed a budget on Monday that
would cut the U.S. deficit by $1.1 trillion over 10 years,
setting the stage for a bitter fight with Republicans who vow
even tougher spending controls. []
Two thirds of Obama's deficit savings come from spending
cuts and expected reductions in interest payments as the deficit
declines. The rest comes from higher revenue, in part as
provisions in a December pact on payroll taxes and jobless aid
expire, and also as stronger growth lifts tax revenue.
"These plans are based on expectations for strong growth in
the U.S., but if unemployment stays high, the only way to get
consumption growth is through credit. I don't see anything in
these plans that will make the dollar a hot currency," said
Stephen Gallo, Head of Market Analysis at Schneider Foreign
Exchange.
Selling in the euro helped to boost the dollar broadly on
the day, pushing it up around 0.4 percent on the day against a
currency basket to 78.781, trading above its 100-day moving
average for the first time in four weeks.
It was flat at 83.35 yen, recovering earlier losses suffered
on selling by Japanese exporters.
(Additional reporting by Naomi Tajitsu, editing by Toby
Chopra)
