* Euro hits 1-mth lows vs dollar, yen, ECB seen cutting rates
* Euro also hurt by S&P ratings warning on Spain
* New Zealand dollar tumbles after S&P rating outlook cut
By Satomi Noguchi
TOKYO, Jan 13 (Reuters) - The euro fell against the dollar
and the yen on Tuesday, hitting one-month lows as expectations
mounted that the European Central Bank will cut interest rates
this week.
The euro extended losses, also dragged down by a potential
downgrade of Spain's top "AAA" rating by Standard and Poor's that
heightened worries about the euro zone's economic outlook.
[]
The euro's fall against the dollar was also partly due to the
greenback's gains against the New Zealand dollar, after Standard
and Poor's warned that New Zealand's foreign currency debt rating
could be downgraded, traders said.[]
The New Zealand dollar fell to a one-month lows below $0.5600
against the dollar and the kiwi also hit its lowest in a month
against the yen.
"Concerns about the sustainability of the economic impact
from stimulus plans and the growing fiscal burden worldwide are
surfacing after hopes about government spending dominated the
market last week," said Masaki Fukui, a senior market economist
at Mizuho Corporate Bank.
"The market has become sensitive to bad news such as credit
outlook downgrading, especially with many investors now
considering where they should be repatriating funds from, instead
of investing to," Fukui said.
The euro dropped 0.7 percent from late Monday New York trade
to $1.3261 <EUR=>, after hitting a one-month low of $1.3240 on
trading platform EBS.
Against the yen, the euro was down 0.6 percent at 118.50 yen
<EURJPY=>, after falling as low as 118.30 yen on EBS, also a
month low.
Markets expect the ECB to cut key interest rates by 50 basis
points to 2 percent on Thursday, a Reuters poll showed. Money
market futures on Monday showed investors see a 75 basis point
cut, and some were bracing for a full percentage point move.
<ECBWATCH>
"Since the euro has been sold recently, investors may cover
their short positions if the ECB slashes rates as expected, but
the short-covering will not last long," said Saburo Matsumoto,
senior manager at Sumitomo Trust & Banking.
He said chances of an ECB rate cut were high but if the
central bank left rates steady the euro would be weighed down, as
the market would question the bank's flexbility in taking
measures to counter the recession.
The dollar edged up 0.2 percent against the yen to 89.30 yen
<JPY=> but stayed near a three-week low of 88.89 yen hit the
previous day, not far off December's 13-1/2-year trough just
above 87 yen.
Traders said falling global stock markets revived investor
risk aversion and prompted investors to move away from
higher-yielding currencies like the Australian and New Zealand
dollars to the perceived low risk of the yen.
Tokyo shares fell 4.8 percent, with Sony Corp <6758.T>
tumbling on a report of an operating loss and after concerns
about massive credit losses at Citigroup <C.N> knocked U.S.
shares down the previous day.[][]
KIWI DIVES
Germany's ruling coalition reached agreement on Monday on a
new economic stimulus package worth 50 billion euros ($67
billion), but the plans have also sparked budget concerns.
[]
Analysts said growing fiscal burdens were a worldwide concern
and a potential negative factor for all major currencies, but the
euro appeared to be an immediate selling target after Spain
became the third euro zone country since Friday to be warned by
rating agency S&P that its credit rating is under threat.
"The driver of the market right now is the euro," said a
trader at a Japanese bank.
"A falling U.S. stock market is a worry for the dollar, but
in the near term the market is likely to focus on the
deteriorating economic outlook in the euro zone," the trader said.
As in the case of Ireland and Greece last Friday, S&P said
Spain faces a painful rebalancing of its economy and a marked
deterioration of its public finances.
The New Zealand dollar tumbled to one-month lows against the
dollar and the yen as S&P said the country's revised outlook
reflected growing external imbalances in the economy and the need
for a fiscal plan to counter the growing current account deficit.
The kiwi fell 2.3 percent to $0.5610 <NZD=D4> after touching
$0.5592, the lowest since mid-December, and slid to a one-month
low of 49.97 yen. <NZDJPY=R>
(Additional reporting by Kaori Kaneko; Editing by Michael
Watson)
