* Euro falls to 5-week low vs dlr on Ireland debt problems
* Technical analysts looking for daily close under $1.3690
* G20 meeting under way, market sets expectations low
(Adds detail, comment, updates prices, changes byline)
By Julie Haviv
NEW YORK, Nov 11 (Reuters) - Growing uncertainty about
Ireland's ability to repay its debts sent the euro to its
lowest level in five weeks on Thursday, overshadowing attempts
at a Group of 20 summit to ease tensions over currency and
trade policies.
Ireland's issues have swiftly moved to the forefront of
currency concerns after taking a backseat to U.S. Federal
Reserve policy for several weeks. Yields on 10-year Irish bonds
rose well above 8 percent to a record high over comparable
German debt, the euro zone's standard.
Investors are worried Ireland would not be able to cut
spending as planned and may require a bailout, with bond
holders forced to absorb losses.
"The market has gone back to focusing on Europe rather than
the U.S., where rates are currently very low," said Greg
Anderson, G10 FX strategist at Citigroup in New York. "It has
become a game of 'Which currency do you dislike the most?' and
right now that currency is the euro."
The Fed's Treasury bond purchase program, announced last
week, is widely viewed as detrimental to the value of the
dollar and a boon for higher-yielding, riskier currencies. That
trade, however, may have run its course and Europe's debt
issues have caused investors to shun higher-risk assets in
favor of the greenback.
The euro fell as low as $1.3637, a five-week trough, and
was last down 1 percent at $1.3656 <EUR=EBS>. It also fell
against the yen <EURJPY=> and hit a seven-week low against
sterling <EURGBP=D4>.
"While we think the euro looks vulnerable over the
near-term, by the end of the year it will likely head higher,"
Anderson said.
Some traders said solvency fears were spreading, with a
rise in Spanish bond yields increasing market anxiety.
"If Spain is coming under the microscope, we could have a
larger breakdown in the euro given the size of the Spanish
economy," said Brian Dolan, chief strategist at Forex.com in
Bedminster, New Jersey.
Dolan said $1.3520 may emerge as the next target, while
other traders said demand for downside options, particularly
one-month $1.3200 strikes, would keep pressure on the euro.
Meanwhile, costs for protecting Irish, Portuguese and
Spanish sovereign bonds from default were at or near records.
INCREASED DOLLAR APPEAL
The spike in Irish yields and decline in German yields as
investors seek shelter in bunds has come as U.S. yields have
turned higher, lifted partly by a string of strong U.S economic
data, including October's employment report.
That makes holding the dollar more attractive and helped it
rise above 82 yen this week for the first time since early
October. It was last up 0.2 percent at 82.43 yen <JPY=>.
The Fed said it would buy $600 billion of Treasuries by
mid-2011 to lower U.S. interest rates and boost slow growth,
though a U.S. think tank report on Thursday said the central
bank could buy fewer bonds if the economy improves. For more,
see: []
Trading was lighter than usual, with some markets in the
United States and Canada closed for holidays. The U.S. bond
market was closed in observance of Veterans Day.
G20 MEETS IN SOUTH KOREA
Europe's woes diverted attention from a G20 summit in South
Korea. Discussion was expected to include exchange rate
policies and global economic imbalances, though few investors
expect a sweeping agreement. [].
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
G20 Take a Look: []
G20 battle lines: http://r.reuters.com/jux34q
Basel III:reshaping the rules: http://r.reuters.com/zys68p
The Fed's big gamble: http://r.reuters.com/cyh73q
After China stimulus package: http://r.reuters.com/puj74q
Live blog:
http://live.reuters.com/uk/Event/G20_Summit_in_Seoul
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Much of the disagreement on currencies focuses on the
United States and China, with the former eager to see the
Chinese yuan appreciate at a faster pace.
Citigroup's Anderson said the G20 meeting is too big of a
group to reach any substantive agreement.'
"There are just too many diverse interests in play, so we
do not expect any major developments to come out of it," he
said.
(Additional reporting by Steven C. Johnson in New York and
Neal Armstrong in London; Editing by Dan Grebler)
