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Euro falls in Asia after France, Greece elections

07 May 2012, 09:23 CET
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(TOKYO) - The euro dropped to its lowest level in more than three months on Monday after the defeat of ruling parties in French and Greek elections, amid worries about a knock-on effect on European austerity measures.

At 8:45 am in Asian trade (2345 GMT Sunday), the euro was changing hands at $1.2965, down from $1.3082 on Friday in New York.

The single currency also fell against the Japanese currency, dropping to 103.47 yen from 104.50 yen on Friday.

The euro dipped to $1.2954 in early trade Monday, its lowest level since late January, while also slumping to 103.22 yen at one stage.

In France, Socialist challenger Francois Hollande was set to be confirmed as France's president-elect, after incumbent Nicolas Sarkozy conceded defeat, according to nearly complete results.

Analysts said Hollande's victory underscored the politically difficult task of selling austerity measures designed to tackle eurozone nations' huge debts, with Hollande advocating economic growth over deep public spending cuts.

"The Hollande win in France is not necessarily a surprise. However it brings home the reality that incumbents following the (European Union's) prescribed austerity measures are going to find it difficult to remain elected," National Australia Bank said in a note.

"What happens to these austerity measures now are what are weighing on (the euro)," the bank said.

In the run-up to the French election, the campaign was dominated by a debate over whether austerity measures demanded by Germany or the growth pushed by Hollande was the best way to help the eurozone out of its debt hole.

Hollande criticised Chancellor Angela Merkel's insistence that deep cuts were the way out of the crisis, while the German leader had publicly called for fellow conservative Sarkozy to win the race.

Greek voters meanwhile showed their lack of enthusiasm for belt tightening, dousing hopes that Athens will stick to its austerity pledges as parties opposing more cuts won almost 60.0 percent support in a general election Sunday.

The two main parties suffered heavy losses, with the conservative New Democracy and the left-wing Pasok getting just 32.0 to 34.5 percent between them, down from 77.4 percent at the last polls in 2009.

New Democracy, led by Antonis Samaras, remained the largest party but it fell short of an absolute majority in parliament.

"Greece's elections may prove the more unstable, with the possibility of another in the near future," the bank said in its research note.

"As it stands there is no clear winner, but there are likely to be calls to ease up on the austerity reforms," it added.

Adding to concern over the 17-nation eurozone, private sector activity fell sharply in April, with even powerhouse Germany grinding to a halt as the bloc's weaker southern members struggled to keep their economies humming.

The Purchasing Managers' Index (PMI) compiled by London-based research firm Markit fell to 46.7 points in April, well below an initial 47.4 estimate.

The report, released last week, raised fears that the eurozone might suffer from a longer recession than initially forecast, while concerns about an economic recovery in the United States also weighed.

The US unemployment rate dropped from 8.2 percent from 8.1 percent in April, but the economy created only a net 115,000 jobs last month, which was below market expectations.


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