* Euro extends loss vs dollar, hits fresh 1-yr low
* Later trims losses on short-covering
* Euro may test $1.30 soon, $1.25 in 3 mths - market players
By Masayuki Kitano
TOKYO, April 28 (Reuters) - The euro hit a one-year low
against the dollar on Wednesday and was seen likely to weaken
further, after downgrades of Greece and Portugal's credit ratings
raised fears the euro zone's debt problems are spreading.
The euro tumbled 1.5 percent on Tuesday in its biggest
one-day percentage loss since June 2009, after ratings agency
Standard and Poor's slashed Greek debt to junk status and
downgraded Portugal. []
The downgrades sent Greek and Portuguese bond yields soaring.
The yield spread between two-year Greek debt and German Schatz
<GR2YT=TWEB><DE2YT=TWEB> now stands at over 1,700 basis points,
while the spread between two-year Portuguese debt <PT2YT=TWEB>
and Schatz climbed to around 450 basis points on Tuesday.
The euro has fallen below a number of long-term support
levels in the past couple of months, including $1.3405, a 61.8
percent Fibonacci retracement of its rally from its 2008 trough
of $1.2329 to its 2009 peak, pointing to the possibility of
further declines.
"The euro is weak. It's the type of currency that's falling
when you notice it," said Akira Hoshino, chief manager at Bank of
Tokyo-Mitsubishi UFJ's foreign exchange trading deparment.
The euro extended its decline in early Asian trading on
Wednesday after hitting option triggers at $1.3150, traders said.
It slumped to a one-year low of $1.3144 on trading platform EBS.
The euro later trimmed its losses on short-covering and was
up 0.3 percent at $1.3210 <EUR=> compared to late U.S. trading on
Tuesday.
Some traders said talk of a meeting between German Chancellor
Angela Merkel, the IMF and the ECB on Wednesday helped lend the
euro some support.
ECB President Jean-Claude Trichet and IMF Managing Director
Dominique Strauss-Kahn are due to brief German parliamentary
groups in Berlin on the Greek rescue plan while Merkel receives
the heads of the IMF, OECD and other international organisations
for talks in Berlin. []
European Union President Herman Van Rompuy told a news
conference in Tokyo on Wednesday that negotiations on Greece's
debt are well on track, and there is no question of restructuring
it.
Any reprieve for the euro was seen likely to be short-lived,
however.
On monthly Ichimoku charts, the euro has dropped below
support at around $1.3770, where the bottom of the cloud now
lies, after having traded above the cloud for much of the last
seven years.
EURO MAY TEST $1.25
Global equities slid following the downgrades of Greek and
Portuguese debt, with Tokyo shares falling more than 2 percent
<> on Wednesday in the wake of the previous day's drop in
U.S. and European shares.
While the euro was seen likely to head lower, market players
said a broad-based retreat from risky assets was unlikely to
persist.
The euro could slide toward around $1.2500 or so in the next
three months, said Koji Fukaya, a senior currency strategist at
Deutsche Securities.
"I think what we are seeing now is still euro aversion rather
than risk aversion," Fukaya said.
"Is this going to dent the global economy and lead to a
double-dip recession? I don't think it's going to have that kind
of impact," Fukaya said.
The yen gave up some ground after rallying broadly on
Tuesday. The euro rose 0.3 percent to 123.25 yen <EURJPY=R>,
after losing more than 2 percent on Tuesday.
"I think what happened was that some short-term positions
were liquidated. I don't get the sense that there has been a
shift in the broader trend," said a trader for a Japanese bank,
referring to Tuesday's broad surge in the yen.
The Australian dollar rose nearly 1 percent against the yen
to 85.98 yen <AUDJPY=R> after falling more than 2 percent on
Tuesday.
The Australian dollar edged higher after data showed
inflation was higher than expected last quarter, leading some to
bet on a modestly higher chance of a rise in interest rates next
week. The Aussie dollar rose 0.8 percent to $0.9221 <AUD=D4>.
[]
The dollar held steady at 93.23 yen <JPY=>.
The Federal Reserve is widely expected to keep U.S. interest
rates on hold near zero after a two-day policy meeting that ends
on Wednesday, and stick to its commitment to keep them there for
an "extended period." []
(Additional reporting by Kaori Kaneko and Charlotte Cooper;
Editing by Michael Watson)
