Euro Weakens on Concern Debt Crisis Will Reach to Italy; Yen Strengthens

The euro dropped to the lowest level in four months versus the yen and traded near a record low against the Swiss franc amid investor concern the region’s debt crisis will spread to Italy, the euro-area’s largest debtor.

The 17-nation currency erased losses against half its major counterparts including the dollar as Italian bonds and U.S. equities reversed earlier declines. The yen reached its strongest level against the dollar since the Group of Seven nations jointly intervened to weaken the currency. New Zealand’s dollar fell against all 16-major counterparts as currencies linked to global growth weakened.

“Some people are trading on reality and some are trading on hope, so the euro doesn’t have a lot of direction,” said Brian Taylor, chief currency trader a Manufacturers & Traders Trust in Buffalo, New York. “The major negative affecting the euro is the worry of contagion to Italy and what that means. There’s no resolution from the finance ministers, which doesn’t help.”

The euro fell as much as 2.7 percent to 109.58 yen, the least since March 17, before trading at 111.34 at 2:05 p.m. in New York. The 17-nation currency touched $1.3837, the weakest since March 11, before trading 0.1 percent lower at $1.4012. The dollar touched 79.17 yen, the lowest level since March 18.