Euro slumps to 18-month dollar low

The European single currency nosedived to an 18-month low yesterday and equities slumped as markets were slammed by fresh eurozone crisis concerns that also sent gold soaring to new record peaks.

"We have seen investors continue to move money out of the banks and miners and into the safe havens of the US dollar and gold," said City Index analyst Joshua Raymond.

The shared European unit tumbled to $1.2433 at 0955 GMT, striking a level which was last seen on November 21, 2008.

European stock markets also headed sharply lower in afternoon deals. London slid 1.75 per cent, Frankfurt shed 1.36 per cent, Paris slumped 2.55 per cent and Madrid plunged 3.74 per cent.

Shares were also rattled by the prospect of eurozone austerity cuts that could derail fragile economic recovery.

In commodity trading, gold prices hit a record peak near $1,250 an ounce, as investors sought a safe-haven in the precious metal amid mounting concerns over the eurozone situation.

Gold jumped as high as $1,249.40 an ounce at 1037 GMT on the London Bullion Market.

Oil futures plunged by about two dollars a barrel as traders reacted to eurozone economic concerns and the strong greenback, which makes dollar-priced crude more expensive for foreign buyers, curbing demand.

Financial markets were also spooked after Paul Volcker, a special adviser to President Barack Obama and a former Federal Reserve chairman, warned late Thursday of the "potential disintegration" of the euro, analysts said. "Clearly, I think we have to say that the euro failed and fell into a trap that was evident at the beginning," Mr Volcker said at an event in London.

"I think Europe's going to have to decide in the end whether to get more integrated or to get less integrated, in which case the euro is the question."

Derek Halpenny, economist at The Bank of Tokyo-Mitsubishi UFJ in London, expressed his amazement at the comments.

"It is quite something for an official from the US administration, Paul Volcker, to openly discuss his view of a 'potential disintegration of the euro' and this will surely not go down well amongst eurozone officials," he said.

"But judging from the comments by ECB President Jean Claude Trichet that the eurozone needs 'fundamental changes', it may be that Mr Trichet privately shares Mr Volcker's view."

Prior to the comments, the euro languished near 14-month dollar lows this week on stubborn concerns at Europe's economic woes, with a one-trillion-dollar rescue package from the EU and IMF failing to calm markets.

The shared eurozone unit has also been slammed by concerns about the ability of eurozone nations such as Greece, Portugal and Spain to impose severe austerity measures to rein in soaring public deficits.

"The euro remains soft and further weakness is likely," VTB Capital economist Neil MacKinnon said.

"This reflects continuing investor unease over eurozone debt problems - despite the EU-IMF bailout - as well as concerns about the expansion in the ECB's balance sheet, particularly after the ECB's recent U-turn in purchasing eurozone government bonds."

He added that ECB intervention in the foreign exchange market "cannot be ruled out but I doubt that it would be effective."

Asian markets were also dragged lower by the eurozone crisis yesterday, with Tokyo falling 1.49 per cent, Hong Kong down 1.36 per cent and Sydney shedding 0.89 per cent.