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Originally published Tuesday, April 27, 2010 at 7:56 AM

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Euro slides below $1.32 amid spreading debt fears

The euro slid against the dollar in morning European trading Wednesday but managed to recover slightly even as fears that the Greek financial crisis could spread to Portugal take their toll on the 16-nation currency.

The Associated Press

BERLIN —

The euro slid against the dollar in morning European trading Wednesday but managed to recover slightly even as fears that the Greek financial crisis could spread to Portugal take their toll on the 16-nation currency.

The euro fell as low as $1.3155 in early trading Wednesday before recovering somewhat to $1.3196, slightly above the $1.3184 it bought in late trading in New York the night before.

The euro has been hurt by Greece's credit rating downgrade to junk status by Standard & Poor's along with concerns that the problems could spread to Portugal, said Michael Hewson, a currency analyst with CMC Markets.

He said that if no relief is forthcoming, the euro could test $1.3050 in coming days. That's far below the high of $1.60 it was at during 2008.

"Yesterday's decision by Standard and Poor's to cut Greece's sovereign debt to 'junk' status and Portugal's status from A+ to A- has sent the bond markets into meltdown and equity investors toward the exits, as risk aversion saw stock markets post their biggest one day declines in weeks," he said.

If others follow, including Moody's and Fitch, it could play havoc with Greek bonds and possibly make them ineligible as collateral at the European Central Bank.

"This has now become an issue of credibility with the euro itself, and the likelihood is that some form of debt restructuring may now be the only option for Greece, despite the IMF and EU commission insisting that this is out of the question," Hewson said.

In other trading, the British pound fell to $1.5219 from $1.5258 and the dollar edged higher to 93.25 Japanese yen from 93.15 yen.

Investors tend to buy the low-yielding yen as well as the dollar on a safety bid in times of turmoil.

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