* Contagion fears to banking system still weigh on euro
* U.S. ISM for May, construction spending for April rise
* Bank of Canada raises benchmark interest rates
* RBA keeps benchmark interest rate steady
NEW YORK, June 1 (Reuters) - The euro fell to a fresh
four-year low against the dollar on Tuesday on signs the euro
zone's debt crisis is spreading to its banking system.
The European Central Bank warned on Monday that euro zone
banks face up to 195 billion euros in a "second wave" of
potential loan losses over the next 18 months due to the
financial crisis. The ECB said it had increased purchases of
euro zone government bonds. For details, see []
Stronger-than-expected U.S. manufacturing and construction
spending data boosted stocks and encouraged some investors to
leave the perceived safety of the U.S. dollar and yen, allowing
the euro to come off lows as the global session wound down.
"The ECB warning on Monday set the stage for euro selling,"
said Matthew Strauss, senior currency strategist at RBC Capital
Markets in Toronto. "Markets remain jittery and overall risk
sentiment is bearish," he said.
In mid afternoon New York trading, the euro was little
changed against the dollar <EUR=> at $1.2301 after dropping
earlier to a four-year low of $1.2112, according to Reuters dat
a. It fell to $1.2110 on electronic trading platform EBS.
The single currency rose as high as $1.2353 as U.S. stocks
advanced in the aftermath of reports showing the manufacturing
sector expanded in May for a tenth straight month and April
construction spending recorded the largest monthly increase in
nearly 10 years. [] [].
"We've seen a fairly sharp recovery in the equity markets,"
said Michael Malpede, chief market analyst at Easy Forex in
Chicago. "This has helped to maybe negate some of the risk
aversion of the early morning trade."
The focus will now shift to reports on the U.S labor
markets due this week and euro selling pressure is likely to
continue despite the currency's brief rebound on Tuesday,
analysts said.
STRUCTURAL PROBLEMS, BOC
The euro closed Monday with its sixth consecutive monthly
decline, the longest losing sequence the single currency has
experienced since 1999, just after its inception. The European
currency fell over 7 percent in May.
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. []
"The data just confirmed some of the structural problems
Europe is facing," said Strauss at RBC.
Traders said euro/dollar stop-losses were triggered 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, they said.
Talk of a double no touch option with perimeters at $1.2100
and $1.2500 may also keep the euro range bound against the
dollar. The option supposedly expires at the end of the week
and the holder may buy and sell to ensure it pays out.
Versus the yen, the euro rose 0.1 percent at 112.34 yen
<EURJPY=> after trading as low as 109.77 yen. The dollar was up
0.1 percent against the yen at 91.29 yen <JPY=>.
Meanwhile, Canada became the first of the G7 major
industrialized countries to hike interest rates following the
global financial crisis, raising its key rate on Tuesday by a
quarter point to 0.50 percent. []
Still, the Canadian dollar was lower against its U.S
counterpart after the move.
The U.S. dollar rose 0.1 percent to C$1.0461 <CAD=>. The
rate increase was expected in financial markets and the BoC
gave no indication it would follow it up with more hikes.
The Australian dollar was down 0.6 percent at US$0.8416
after the Reserve Bank of Australia left Australia's benchmark
rate unchanged at 4.5 percent as expected. []
(Additional reporting by Wanfeng Zhou; Editing by Andrew Hay)
