Euro sinks to 11-month low

Posted at 12/29/2011 7:25 AM

NEW YORK - The euro plunged below the $1.30 line Wednesday to its lowest level since January 11, hit by new nerves over Italy's ability to maintain financial stability.

Steady early in the day, the euro took a sharp dive after US markets opened to as low as $1.2912 before rebounding slightly. At 2200 GMT, the euro was trading at $1.2934, down from $1.3070 late Tuesday.

"With the overhanging fear about the eurozone sovereign debt crisis, the opening of US cash equity trading saw a flight to safety and a move into safe haven currencies like the Japanese yen and US dollar," said MoneyCorp analyst Mark Deans.

There was some encouragement at first when Italy raised 9.0 billion euros ($11.8 billion) at a rate of 3.251 percent for six-month notes, half the 6.504 percent it paid in November.

But some analysts suggested that European banks making use of low-cost European Central Bank money were largely behind the auction's success.

Sentiment soured as yields on 10-year Italian bonds jumped to a painfully high 6.9 percent on the markets, raising worries about Rome's plans to sell longer-term bonds on Thursday.

"Market jitters are still there in regards to the 10-year debt on offer by Italy in tomorrow's trading session," said Deans.

He added that thin trading conditions ahead of the year-end were also exacerbating moves in the foreign exchange market.

The euro slipped to 100.80 yen from 101.77 yen Tuesday. The dollar was at 77.90 yen, up from 77.88.

The dollar bought 0.9427 Swiss francs compared to 0.9340 francs.

The British pound dropped to $1.5450 from $1.5669.