* Euro briefly falls to day's lows after Ireland's rating
cut
* Asia stocks fall 1 pct as weak U.S. data weighs
* U.S. dollar firm despite concerns about U.S. growth
* Bernanke testimony, EU stress test results later in week
By Koh Gui Qing
SYDNEY, July 19 (Reuters) - The euro extended losses on
Monday, pulling further away from two-month highs, after
Moody's cut Ireland's credit rating, highlighting the fragility
of Europe's fiscal health.
The euro <EUR=> quickly fell to the day's lows of $1.2868
after the rating agency cut Ireland's government bond ratings
to Aa2, from Aa1, saying the country had suffered a
"significant loss of financial strength."[]
The move came as markets are anxiously awaiting the results
of stress tests on European banks due out on Friday, and after
the IMF and EU suspended a review of Hungary's funding
programme at the weekend, saying the government must take tough
action to cut its budget deficit. []
[]
The downgrade added to the gloom in stock markets, which
fell in Europe and Asia as a sharp drop in U.S. consumer
sentiment fueled worries that its economic recovery may be
stalling.
The FTSEurofirst 300 <> index of leading European
shares fell 0.4 percent in early trade, while the MSCI index
for Asian stocks outside Japan <.MIAPJ0000PUS> dropped 1.2
percent, its worse daily performance this month, as investors
sold riskier assets.
The Japanese market was shut on Monday for a holiday.
"The key issue driving the market at the moment is slower
global growth," said George Clapham, head of equities at Arnhem
Investment Management in Australia.
Investors who believed the world economy is on shaky ground
got more ammunition for their arguments on Friday after U.S.
data showed consumer prices fell for the third straight month
in June while consumer sentiment dropped to a near one-year
low, the latest in a spate of weak reports. []
Major U.S. stock indexes slumped as much as 3.1 percent,
with the selling spilling over into Asia on Monday. []
Reflecting investor anxiety about sluggish economic growth,
sub-indices for the MSCI Asia ex-Japan share index showed
shares in banks and firms that sold non-essential consumer
goods were the worse performers.
The financial <.MIAPJFN00PUS> and consumer discretionary
<.MIAPJCD00PUS> sub-indices were down 1.3 percent each.
In Hong Kong, consumer goods exporter Li & Fung <0494.HK>
fell 2.6 percent, while Europe-focused retailer Esprit Holdings
<0330.HK> was down 2.4 percent.
But some investors said that while the U.S. economy is no
doubt weak, worries that it may fall back into recession may be
overdone.
"It's slowing but it's very unlikely to get a double-dip
recession," said Khiem Do, head of the Asia multi-asset group
at Baring Asset Management, which oversees $50 billion.
He said he had a slight preference for Asian and European
stocks because they seemed cheaper than bonds.
Worries another recession may be on the cards have fuelled
demand in recent weeks for bonds, which are deemed a safer bet.
For example, two-year U.S. Treasury yields <US2YT=RR> are near
record lows.
But there was no missing the weak tone in other markets. Oil
prices <CLc1> slipped below $76 a barrel on concerns that U.S.
fuel demand may wane, while safe-haven gold <XAU=> eased to
$1,192.10 an ounce after falling to its lowest in more than a
week in the previous session.
EURO AWAITS BANK STRESS TESTS
In currency markets, traders said they were not surprised
at the euro's pullback on Monday, saying it had been expected
after its recent rally, which has been largely attributed to
short covering and weakness in the U.S. dollar.
(For a Reuters Insider video clip looking at the euro's
technical chart patterns, please click on
http://link.reuters.com/haz28m)
By mid-afternoon in Asia, the euro pared some of its losses
from the Ireland downgrade news and traded at $1.2891 <EUR=>,
down 0.19 percent from Friday's levels in New York.
For the year, the common currency has shed 10 percent on
worries about euro zone sovereign debt levels. That compares
with a 6.7 percent gain in the yen <JPY=>, and a 5.3 percent
drop in sterling <GBP=>.
Monday's drop in the euro benefitted the U.S. dollar,
despite the growing concerns about the U.S. economy. The U.S.
dollar index <DXY> against a basket of other major currencies
was up 0.2 percent at 82.643.
Investors are awaiting semi-annual testimony by U.S.
central bank chief Ben Bernanke on Wednesday for his view on
whether the economic recovery is faltering.
(Editing by Kim Coghill)
