Euro hits four-year low against the dollar

The euro slumped to a four-year low against the dollar today on mounting concerns about eurozone debt, traders said.

Sentiment remained fragile despite an EU-IMF rescue package worth almost a trillion dollars designed to prevent the Greek debt crisis from spreading as fears grew that the single currency is at risk of collapse.

"A week ago, markets were glowing in the aftermath of the massive rescue package announced by European policymakers," Goodbody Stockbrokers economist Dermot O'Leary said.

"Now, markets are fretting once more, with risk assets down and the euro falling to its lowest level since April 2006. What has changed?

"The primary concern centres around the view that last week's announcements are nothing more than a temporary fix and that debt restructuring will have to be part of any lasting solution," the Dublin-based analyst said.

Asian equity markets tumbled, with Shanghai diving five percent to reach the lowest level in more than a year. Tokyo fell 2.17 percent, hitting an 11-week low, Hong Kong shed 2.14 percent and Sydney slumped 3.12 percent.

The picture was brighter in Europe, with London managing to rise 0.44 percent and Frankfurt up 0.16 percent in morning trade, although Paris fell 0.45 percent.

On foreign exchange markets, the euro hit 1.2235 dollars in Asian trade -- its lowest since April 2006 -- compared with 1.2358 dollars in New York Friday. The single currency later recovered to 1.2280 dollars in European deals.

"Concerns that severe fiscal austerity in the eurozone will crush growth in the region continue to weigh" on the euro, said John Kyriakopoulos of National Australia Bank in Sydney.

Hideaki Inoue at Mitsubishi UFJ Trust and Banking Corp. commented: "Investors are questioning if tightening fiscal spending really is the right thing to do because it would have a negative impact on the economy.

"The entire economic outlook is becoming increasingly grim."

The price of gold meanwhile came off record highs made as investors exit the single currency in favour of safe haven investments.

The precious metal stood at 1,234.35 dollars an ounce in London on Monday, down from Friday's record 1,249.40 dollars.

The debt crisis began as Greece teetered towards default, triggering fears that other weak eurozone economies such as Portugal, Spain and Italy may be next.

Worries that a possible debt default by Greece could hit the world's financial system in the same way the collapse of Lehman Brothers did two years ago have sent shares and the euro plunging in recent days.

International Monetary Fund chief Dominique Strauss-Kahn on Sunday said that European nations had taken too long to respond to the Greek crisis.

Athens is now paying a painful price for its past overspending with the government forced to slash civil servant pay and pensions while raising taxes as a condition for a 110-billion-euro EU-IMF bailout.

The IMF and EU agreed the Greek bailout only at the beginning of May, and a week later were forced to put together a trillion-dollar euro rescue plan as investors continued to dump the currency and European shares.

Greek Prime Minister George Papandreou yesterday raised the possibility of taking legal action against US banks, saying they bear "great responsibility" for Greece's debt crisis, according to a transcript of an interview with CNN.