Euro strengthens in Asian trade

FILE PHOTO

TOKYO – The euro moved higher in Asian trade on Tuesday, but gains were limited after Spain’s borrowing costs hit a record high and optimism over Greek elections – which had sent the unit soaring – faded.

The common currency was changing hands at $1.2603 and 99.56 yen in Tokyo, up from $1.2571 and 99.45 yen in New York late Monday.

The dollar eased to 78.96 yen from 79.11 yen in US trading.

The euro had soared above $1.27 and 100 yen in morning Asian trade on Monday as markets cheered a victory by pro-bailout parties in Greek elections, which were seen as a referendum on the debt-hit nation’s future in the eurozone.

However, the initial optimism largely evaporated overnight as Spain’s borrowing costs topped 7.0 percent, a fresh record high that renewed broader concerns about the 17-nation bloc.

Traders have now turned their attention to a summit of the Group of 20 major economies in Los Cabos, Mexico, and efforts to boost an international firewall designed to support nations at risk of contagion from the global crisis.

The International Monetary Fund, hoping to prevent a worsening of the global economic turmoil, called last year for $500 billion in an emergency firewall.

But the money has fallen short and it said Monday in Mexico it had raised $456 billion.

China said Monday in Los Cabos it would contribute $43 billion to the IMF while India and Russia said earlier they would each kick in $10 billion.

Japan has stumped up $60 billion, while Britain, South Korea and Saudi Arabia have each pledged $15 billion. Singapore and other European governments have also contributed smaller amounts.

A 100 billion euro ($126 billion) loan to prop up Spain’s troubled banks had temporarily eased eurozone worries, but questions about the deal and a wider plan to fix the region’s problems remain, dealers said.

“Patchwork measures have little effect … Ultimately, what’s needed is the fiscal union (in Europe),” said a senior dealer at a major Japanese trust bank.

Markets were also awaiting the US Federal Reserve’s two-day policy meeting starting Tuesday for signs of additional stimulus to kick-start the world’s biggest economy.