* Euro falls for second straight day vs dollar
* Yuan makes minimal headway after China pledge
* Swiss franc extends gains, hits all-time high vs euro
* Sterling volatile, then higher on UK budget
(Recasts, updates prices, adds quote)
NEW YORK, June 22 (Reuters) - The dollar rallied for a
second straight day against the euro on Tuesday as new concerns
about the funding needs of European banks offset
stronger-than-expected German economic data.
The yuan declined against the dollar after China's weekend
pledge to allow its currency to trade more freely.
Monday's upward momentum that helped stoke demand for
higher-yielding currencies such as the Australian dollar faded
as investors acknowledged that a more flexible yuan policy
would not lead to a sharp appreciation in the Chinese currency.
Euro zone bank woes came to the fore after French bank
Credit Agricole <CAGR.PA> pushed back profit targets for its
struggling Greek unit Emporiki <CBGr.AT> on Tuesday and said it
will take a 400 million euro ($536.7 million) write-down as
Greece fights its debt load. []
A ratings downgrade of French bank BNP Paribas by Fitch and
S&P's announcement on Monday that it had raised estimates for
loan losses for Spain's banking sector continued to weigh on
the euro [] and [], analysts said.
The single currency extended losses after Moody's Investor
Services downgraded two Greek government-sponsored asset-backed
securities.
"The Credit Agricole, BNP and Moody's news has all brought
back into the limelight the likelihood of structural problems
in the euro zone," said Omer Esiner, chief market analyst at
Commonwealth Foreign Exchange Inc in Washington, D.C. "The
impact from yesterday's China's news has definitely faded."
Midway through the New York session, the euro <EUR=> was
down 0.2 percent at $1.2282, with a session low at $1.2251.
The single currency touched $1.2490 on electronic trading
platform EBS on Monday, its strongest point since May 24,
though it failed to break into the $1.25 region.
Market participants said the euro would face more losses,
but technical analysts said near-term support was seen at
$1.2253, a 38.2 percent Fibonacci retracement of the rise from
a four-year low around $1.1875 on June 7 to Monday's high.
The euro barely reacted to the German Ifo business climate
index, which hit a two-year peak in June, while the
expectations index fell. []
"The positive surprise in the Ifo index failed to change
the market's negative mood. The fact that the expectations
component was downbeat did not help to support the single
currency," analysts at Credit Agricole CIB said in a note.
The Swiss franc extended gains to an all-time high against
the euro after the Swiss central bank's vice chairman said the
bank would not intervene in markets for now. [].
The euro fell to a low of 1.3590 francs <EURCHF=>,
according to Reuters data, with options barriers at both 1.3650
and 1.3600 giving way.
Against the yen, the euro fell 0.7 percent to 111.23 yen
<EURJPY=>. The dollar <JPY=> fell 0.4 percent to 90.61 yen as
the Japanese currency rose across the board.
CHINA IMPACT FADES
China's pledge to revalue its currency had less impact on
markets on Tuesday.
"It's indicative of the market sentiment out there that the
Chian euphoria lasted all of 18 hours yesterday before we
reverted to risk aversion," said Brian Dolan, chief currency
strategist at Forex.com in Bedminster, New Jersey.
Market rumors of expected currency portfolio adjustment had
little impact on trading. Investors would have to know the size
of components in any official Chinese currency basket for
indications as to how much they should buy and sell those
components as the yuan revalues.
Trades would also have to be singularly large to drive
exchange rates.
The yuan's daily mid-point <CNY=SAEC> was set at 6.7980 per
dollar on Tuesday, the highest since its July 2005 revaluation,
but the Chinese currency relinquished further gains as big,
state-owned banks heavily bought dollars. Some traders believe
the buying by state-owned banks was on behalf of the People's
Bank of China to avoid direct market intervention
[].
Sterling fell to a session low against the dollar <GBP=>
but then recovered as investors reacted positively to UK
Finance Minister George Osborne's first budget. []
(Reporting by Nick Olivari; Additional reporting by Steven C
Johnson in New York, and Naomi Tajitsu and Tamawa Desai in
London; Editing by Leslie Adler)
