* Euro falls as euro zone debt problems come into focus
* Korean peninsula tension helps dollar
* Markets on edge over Ireland, worried about Spain
(Updates prices, adds comment, detail, byline)
By Steven C. Johnson
NEW YORK, Nov 23 (Reuters) - The dollar rose for a second
straight day on Tuesday after North Korea's shelling of a South
Korean island enhanced the currency's safe-haven appeal, while
fear that an Irish debt crisis could spread punished the euro.
The euro plunged to a two-month low beneath $1.34 and also
dropped below 111 yen for the first time since mid-September as
investors worried that Spain and Portugal may have to follow
Ireland in seeking emergency aid to stave off a debt crisis.
That left the euro, in the words of German Chancellor
Angela Merkel, in an "exceptionally serious" situation.
Analysts said it could easily slip as far as $1.30.
The euro was last trading at $1.3391 <EUR=>, down 1.7
percent and on track for its biggest daily decline since
August. It was down 2 percent at 111.24 yen <EURJPY=>. See
[].
"Things could get more troubling, as the market is looking
beyond Ireland and turning to Spain and Portugal. Traders will
likely target $1.30 into year end," said Hidetoshi Yanagihara,
senior currency trader at Mizuho Corporate Bank in New York.
Spain frightens investors most, as it is the euro zone's
fourth largest economy and, unlike Ireland, still has to raise
money on capital markets this year. Spain's short-term cost of
borrowing almost doubled at a tender on Tuesday.
This came as North Korea fired scores of artillery shells
at a South Korean island, killing two in one of the heaviest
attacks by North Korea on its neighbor since the Korean War
ended in 1953. It sparked a broader move away from risky trades
and into U.S. Treasuries and the dollar. []
The dollar rose 3.5 percent against the South Korean won
<KRW=> to its highest level since early September. Investors
also cut exposure to the high-yielding Australian dollar
<AUD=D4>, which fell 1.5 percent against its U.S. counterpart.
Against the yen, which also tends to attract some
safe-haven buying when risk aversion spikes as it did on
Tuesday, the dollar edged down 0.3 percent to 83.03 yen <JPY=>.
But an index of the dollar against six major currencies <.DXY>
rose 1.1 percent.
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Ireland requests international bailout []
Europe debt problems []
Euro zone debt struggle: http://r.reuters.com/hyb65p
Multimedia on euro zone crisis: http://r.reuters.com/hus75h
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EURO WOES, FED THINKING
The euro's fall against the dollar extended after U.S. data
showed sales of previously owned homes fell more than expected
in October, increasing risk aversion. The euro fell below
$1.3438 against the dollar, a 50 percent Fibonacci retracement
of its August through November rally.
Beyond that, the way is clear for a retest of $1.3333, the
August peak, according to Reuters data.
Stephen Gallo, head of market analysis at Schneider Foreign
Exchange in London, said Europe's debt crisis could frustrate
efforts to rebalance global growth as China and others resist
pressure to allow more rapid currency appreciation.
"The greater the degree of financial market distress
emanating from the euro zone, the less it could be that
People's Bank of China allows for any more aggressive moves in
its currency," he said.
The euro zone's debt crisis overshadowed the release of
minutes from the Federal Reserves's last policy meeting, which
showed officials considered even more drastic options to boost
growth before it settled on buying $600 billion in Treasuries.
For more, see []
For months, anticipation of the Fed's bond-buying plan,
announced earlier this month, pushed the dollar sharply lower
against major currencies, though its decline stalled this month
as Europe's problems emerged anew.
(Additional reporting by Nick Olivari in New York and Anirban
Nag in London; Editing by )
