* Dollar gains vs euro on Greek debt rating downgrade
* U.S. retail sales plunge, dampening risk appetite
* ECB meets on Thursday, expected to cut rates by 50 bps
* Russia weakens ruble to six-year low vs dollar
(Recasts, updates prices, adds comment, changes byline)
By Steven C. Johnson
NEW YORK, Jan 14 (Reuters) - The euro fell against the
dollar and yen on Wednesday after a downgrade to Greece's debt
rating heightened fears about the euro-zone economy and a sharp
slide in U.S. retail sales suggested a deepening global slump.
Though a 2.7 percent plunge in sales at U.S. stores in the
December holiday shopping season shed light on the severity of
the U.S. recession, the dollar gained on fear that a tapped-out
American consumer is also trouble for the rest of the world.
That sent the euro to a fresh one-month trough beneath
$1.31 <EUR=>. It later rebounded to $1.3155, down 0.3 percent.
"The retail sales number seems like a bearish number for
the U.S., but it's actually probably more reflective of a
bearish signal for those who export a lot to the United
States," said David Watt, senior currency strategist at RBC
Capital Markets in Toronto.
"Granted it's a not a great story for the U.S. dollar, but
it's actually more negative for other currencies."
Standard & Poor's move to cut Greece's sovereign debt
rating also weighed on the euro, sending it at one point to a
near six-week low at 116.58 yen <EURJPY=> and boosting the
chances that the European Central Bank will cut interest rates
on Thursday from 2.5 percent to 2 percent.
The Russian ruble <RUB=> fell to a six-year low against the
dollar and record low against the euro <EURUB=> as authorities
quickened the pace of devaluation amid falling oil prices and
soaring capital outflows. [].
A rise in investor risk aversion also sent the New Zealand
<NZD=> and Canadian <CAD=> dollars tumbling against the U.S.
currency, as both are seen as vulnerable to falling commodity
prices and slowing growth.
The safe-haven appeal of the yen, meanwhile, got a boost,
with the dollar at one point falling to 88.62 yen <JPY=> as
U.S. stocks fell and fears of new banking credit losses grew.
It last traded at 89.02 yen, down 0.1 percent from Tuesday.
EURO WOES
Adding to bearish sentiment on the euro were reports, later
denied, that Irish Prime Minister Brian Cowen said IMF help may
be needed if Ireland's economic downturn worsens.
The IMF also weighed in, saying there was no reason to
think that Ireland will need IMF financing. [].
Concerns over the single currency bloc's economy and public
finances mounted after Spain and Portugal became the third and
fourth euro zone countries, after Greece and Ireland, since
last week to be warned by S&P that their credit rating is under
threat from the global financial crisis.
Also on Wednesday, the German Federal Statistics Office
said the country's economy likely contracted by between 1.5
percent and 2 percent in the final three months of 2008. See
[].
"The market is underestimating the extent of the recession
in the euro zone, which is being made worse by the lack of, or
at least the very slow, policy response," currency strategists
at BNP Paribas wrote in a note.
Alan Ruskin, chief international strategist at RBS
Greenwich Capital in Greenwich, Connecticut, said a period of
divergence within the 16-country euro zone likely ensures that
rates will go lower and stay there longer than once thought.
That, he said, may add to "uncertainty on the viability of
the common currency for long-term investors, including reserve
managers" and suggests more losses against the dollar.
(Additional reporting by Wanfeng Zhou; Editing by Chizu
Nomiyama)
