Euro Declines After Sarkozy, Merkel Dismiss Euro Region Bonds; Franc Drops

The euro weakened against a majority of its most-traded counterparts after German and French leaders rejected a mechanism for the region to jointly issue bonds to contain its sovereign-debt crisis.

The 17-nation currency briefly pared losses after French President Nicolas Sarkozy said France and Germany are working on “ambitious” joint proposals to defend it. The Swiss franc erased gains against the dollar and euro after U.S. industrial production climbed, curbing the currency’s haven appeal. The pound rose versus the dollar after U.K. inflation accelerated.

“The initial euphoria around the comments has waned as it’s become clear that there’s not going to be a eurobond,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “There’s a fair amount of disappointment around it, and that’s why the euro has taken a hit.”

The euro declined 0.3 percent to $1.4396 at 1:33 p.m. in New York, from $1.4445 yesterday, when it reached $1.4477, the highest level since July 27. The European currency fell 0.5 percent to 110.43 yen. The dollar slipped 0.1 percent to 76.72 yen, from 76.83 yen.

Germany and France share an “absolute determination” to defend the euro, Sarkozy told reporters in Paris today after talks with German Chancellor Angela Merkel. The two countries will propose a financial transaction tax in September, he said.