Spain is collapsing

Spain Now Faces a Systemic, Societal, and Sovereign Collapse

Zero Hedge,

29 November, 2012

Spain’s financial system is at truly apocalyptic levels.

If you’ve been reading me for some time, you know that Spain has already experienced a bank run equal to 18% of total deposits this year alone (another story the mainstream media is avoiding). However, what you likely don’t know is that an on annualized basis, Spain has experienced portfolio and investment outflows GREATER THAN 50% OF ITS GDP.

To give this number some context, Indonesia only saw outflows equal to 23% of its GDP during the Asian Financial Crisis. Spain is experiencing more than DOUBLE this.

I’ve long averred that Spain will be the straw to break the EU’s back. By the look of things this is not far off. The country’s regional bailout fund has only less than €1 billion in funding left. As the below chart shows, this will barely make a dent in the regions’ debt problems:

Indeed, things are far far worse than is commonly know. Valencia for instance owes its pharmacies over €500 billion. In some areas there is no longer insulin.

In the region of Andalusia some government workers haven’t been paid in eight months and are working for free while begging for food.

And Catalonia is pushing to secede from Spain entirely. Indeed, its pro-secessionist leader, President Artur Mas, just won the most recent election. And over 1.5 million of Catalonia’s 7.5 million inhabitants turned out for an independence rally in September.

Again, Spain as a country is finished. Things are so bad that British Airways (many wealthy Brits vacation in Spain) is putting a contingency plan for SPAIN to leave the Euro.

Worst of all, it is clear EU and Spanish leaders have no clue how to deal with any of this. Their latest plan is for the country to cut the balance sheets of three nationalized banks by 50% sometime in the next five years. How will they do this? By dumping their toxic property assets into a “bad bank.”

The idea here is that somehow someone will want to buy this stuff. Spain already had to postpone the launch of the bad bank by a month because no one wanted to participate in it (despite the mainstream media claiming that the idea was popular which is untrue).

So, here we have Spain proposing that it can somehow unload a ton of garbage debts onto “someone” even though there is no “someone” to buy them. And the whole point of this exercise is to meet conditions so that Spain would qualify for another €40 billion in aid.

€40 billion in aid... when  Spain has experienced portfolio and investment outflows of more than €700 billion.

Indeed, things are so bad that the ECB has put the entire Spanish banking system on life support to the tune of over €400 billion Euros. To put this number into perspective, the entire equity base for every bank in Spain is only a little over €100 billion.

Oh, and the country needs to issue over €200 billion in debt next year.

If you’re looking for ideas on how to navigate this mess, we have produced a FREE Special Report available to all investors titledWhat Europe’s Collapse Means For You and Your Savings.

This report features ten pages of material outlining our independent analysis real debt situation in Europe (numbers far worse than is publicly admitted), the true nature of the EU banking system, and the systemic risks Europe poses to investors around the world.

It also outlines a number of investments to profit from this; investments that anyone can use to take advantage of the European Debt Crisis.

Best of all, this report is 100% FREE. You can pick up a copy today at:

http://gainspainscapital.com/eu-report/

Best Regards,

Graham Summers

Bankia Details Deep Cuts, Sees EUR19 Bln Loss This Year

WSJ,

29 November, 2012

MADRID--Bankia SA (BKIA.MC) said Wednesday it will cut its staff numbers by more than 6,000 and close more than 1,000 branches, as well as shed 50 billion euros ($64.8 billion) worth of assets as it downsizes and refocuses on retail banking.

The Madrid bank, Spain's fourth-largest in terms of assets and the largest of bailed-out lenders in the crisis-hit country, also estimated that it would report a loss of EUR19 billion this year, by far the biggest loss in the history of Spanish banking. However, it expects to swing back to a profit from next year.

Bankia outlined its restructuring plan shortly after European Union regulators had given the green light to it and the restructuring plans of three other Spanish lenders.

The four banks together will receive a total capital injection of EUR37 billion, of which Bankia will get EUR17.94 billion.

The number of staff will be reduced by 28%, to 14,500 workers, while the retail branch network will be cut by 39% to between 1,900-2,000 branches, Bankia said.

The bank will withdraw from lending to real-estate development and limit its presence in wholesale banking, focusing only on retail and small- and medium-sized business lending. It will also halt dividend payments until 2014 as it rebuilds capital....

For rest of article GO HERE

EU to bail out four Spanish

banks

UPI,

29 November, 2012

The European Commission said it would loan $48 billion to four banks in Spain provided they follow restructuring recommendations.

To receive the funding, the banks will have to lay off thousands of workers, The New York Times reported Wednesday.

The move to rescue BFA/Bankia, NCG, Catalunya Banc and Banco de Valencia was "a milestone," said European Union antitrust commissioner Joaquin Almunia.

In prior bailouts set up by the European Union, funds have gone to governments, not private firms.

The bailout will make use of European Stability Mechanism funds and is part of a $130 billion program set up for Spanish banks.

So far, Spain continues to claim that not all of the $130 billion will be necessary to rescue its banking sector, which got into trouble as loans defaulted with global economic downturn coming on the heels of a building boom in Spain.

An audit conducted by consulting firm Oliver Wyman said Spanish banks would require $76.7 billion to return to stability.

Spain dominates the headlines

Spain to inject 6 billion euro into FROB bank fund: source

The Spanish Treasury will inject 6 billion euros ($7.6 billion)into the state's bank rescue fund to beef up its firepower after the emergency recapitalization of troubled lender Bankia (BKIA.MC), a source from the Economy Ministry said on Tuesday.

Reuters,

4 September, 2012,

The FROB fund will receive both state debt and cash, the source said, adding that the operation would boost its capital base to 15 billion euros from 9 billion.

"This has happened because of Bankia's recapitalization," the source said on condition of anonymity.

The FROB on Monday approved an immediate capital injection of 4.5 billion euros into Bankia.

The source also said the move should not impact Spain's liquidity position in a substantial way. The country's cash balance has shrunk in recent months as fiscal revenues fall short of expectations.

Spain is inching towards seeking international aid after requesting a 100-billion-euro European credit line for its battered banks in June. Sources told Reuters last month that negotiations were under way.

Fears Rising, Spaniards Pull Out Their Cash and Get Out of Spain

CNBC,

4 September, 2012

It is, Julio Vildosola concedes, a very big bet.

After working six years as a senior executive for a multinational payroll-processing company in Barcelona, Spain, Mr. Vildosola is cutting his professional and financial ties with his troubled homeland. He has moved his family to a village near Cambridge, England, where he will take the reins at a small software company, and he has transferred his savings from Spanish banks to British banks.

“The macro situation in Spain is getting worse and worse,” Mr. Vildosola, 38, said last week just hours before boarding a plane to London with his wife and two small children. “There is just too much risk. Spain is going to be next after Greece, and I just don’t want to end up holding devalued pesetas.”

Mr. Vildosola is among many who worry that Spain’s economic tailspin could eventually force the country’s withdrawal from the euro and a return to its former currency, the peseta. That dire outcome is still considered a long shot, even if Spain might eventually require a Greek-style bailout. But there is no doubt that many of those in a position to do so are taking their money — and in some cases themselves — out of Spain.

In July, Spaniards withdrew a record 75 billion euros, or $94 billion, from their banks — an amount equal to 7 percent of the country’s overall economic output — as doubts grew about the durability of Spain’s financial system.

The withdrawals accelerated a trend that began in the middle of last year, and came despite a European commitment to pump up to 100 billion euros into the Spanish banking system. Analysts will be watching to see whether the August data, when available, shows an even faster rate of capital flight.

More disturbing for Spain is that the flight is starting to include members of its educated and entrepreneurial elite who are fed up with the lack of job opportunities in a country where the unemployment rate touches 25 percent.

According to official statistics, 30,000 Spaniards registered to work in Britain in the last year, and analysts say that this figure would be many multiples higher if workers without documents were counted. That is a 25 percent increase from a year earlier.

“No doubt there is a little bit of panic,” said José García Montalvo, an economist at Pompeu Fabra University in Barcelona. “The wealthy people have already taken their money out. Now it’s the professionals and midrange people who are moving their money to Germany and London. The mood is very, very bad.”

It is possible that the outlook could improve if the European Central Bank’s governing council, which meets Thursday, signals a plan to help shore up the finances of Spain and other euro zone laggards by intervening in the bond markets.

But right now, if anything, Spain’s picture is growing dimmer.

On Friday, the government’s bank rescue fund said it would need to pump up to 5 billion euros into the failed mortgage-lending giant Bankia, which the state seized in May. And on Monday, Andalusia became the latest of Spain’s semiautonomous regions to ask the central government for rescue money.

The wider prospects for the euro zone are also still bleak. Moody’s [MCO 39.72 0.12 (+0.3%) ]Investors Service said on Monday that it had changed its outlook on the AAA rating of the European Union to negative, and that it might downgrade the rating if it decides to cut the ratings on the union’s four largest budget contributors.

Spain’s gathering gloom comes despite a gradual return of capital to banks in Greece and the relative stability of deposits in those other euro zone trouble spots, Italy, Ireland and Portugal.

The continued exodus of money and people from Spain could be a warning to European policy makers that bailing out the country — a step now widely expected — may not stem the panic as long as the Spanish economy remains in a funk.

It was a lesson learned in Greece, where despite successive European bailouts, about a third of deposits have been withdrawn from its banks since 2009, as the public worried that Athens might have to return to the drachma.

Spain is still a far cry from a nearly bankrupt Greece: it has a much larger and more diverse economy, lower levels of debt and a bond market that is still functioning.

It might be more accurate to say that money is leaving Spanish banks at more of a jog than anything close to a sprint.

Although retail and corporate deposits are down 10 percent compared with those of July 2011, the country remains relatively rich in savings, with 2.3 trillion euros in overall deposits, according to data from Morgan Stanley.

But once under way, the flight of bank deposits can easily overwhelm rational facts and analysis.

Setting off the flight was the failure of Bankia, which came as a shock to Spanish savers who had been assured by government officials that the bank was in good shape.

Instead of calming fears, the state takeover prompted comparisons to Argentina in 2001, when peso bank accounts denominated in dollars were frozen in order to stem the flight of deposits.

The corralito, or corral, as the Argentine action is known, has become part of the public conversation in Spain. The million-plus Argentines who have since immigrated to Spain have provided ample and gory stories of desperate legal battles and wiped-out savings.

Eduardo Pérez, a Spaniard who was working in Argentina during that period, remembers the events all too well. He said he lost four-fifths of the money he had kept in an Argentine savings account, though he declined to say how much money was involved.

“Some of my friends lost everything,” Mr. Pérez said. “So yes, everyone in Spain knows about the corralito.”

Recently, Mr. Pérez, who lives in the northern city of Bilbao, removed about a third of his euros from his Spanish savings account and sent them to Singapore, converting them to Singapore dollars.

Having lost his job at a multinational company a few months ago, Mr. Pérez, 48, is trying to make ends meet by focusing on his travel Web site and blog, which aggregate Spanish-language travel videos.

But as the job outlook worsens, he is contemplating following in the path of his savings and starting a new life in Singapore with his wife.

“Two years ago, we never would have thought of this, but now I have real fears that there will be a breakup with the euro,” he said. “And when you keep hearing people saying, ‘Don’t worry, it’s not going to happen’ — well, that is when you have to start worrying.”

Analysts said that the record-high outflow from Spain in July was probably spurred in part by July’s being a taxpaying month for many corporations, which prompted them to withdraw cash from deposit accounts.

Also playing a role were investment funds that moved cash reserves to foreign banks in light of the credit downgrades at Spanish banks.

Still, as the examples of Mr. Vildosola and Mr. Pérez show, individual deposit flight is becoming more pronounced.

Some people are willing to fly to London for the day just to open an account there, as most banks in the city require such transactions to be made in person.

Spanish bankers working for British financial institutions say they have been hit with a barrage of questions about how to open savings accounts in London.

“It seems as if everyone I know in Spain is getting on an easyJet to come to London and open a bank account,” said one such banker, who spoke on condition of anonymity, citing his company’s policy.

That is what Mr. Vildosola did before he took the more drastic step of moving his family to England.

“It’s sad,” he said. “But I just don’t think there is a future for me in Spain right now.”

Spain's Capital Flight Now Worse Than Asian Financial Crisis

The flight of capital from Spain is now worse than what Indonesia, one of the hardest hit countries during the Asian financial crisis, experienced in the late 1990s, according to analysis by Nomura.

CNBC,

4 September, 2012

On a three-month rolling basis, portfolio and investment outflows from Spain totaled 52.3 percent of the country’s gross domestic product (GDP), (that's) more than double the outflows from Indonesia, which reached 23 percent of GDP at the time of the Asian crisis, Jens Nordvig, global head of G10 FX strategy at Nomura wrote in a note to clients on Tuesday.

Spaniards and foreign investors have been pulling money out of Spanish banks as the economy has worsened in recent months, and Nordvig said without the single currency and the flows from the ECB, Spain would already be going through a major currency crisis. (

We would stress that the broad-based nature of the capital flight, which involves both banking claims and securities and flows from both residents and non-residents, makes for a rather extreme overall outflow, and one that raises serious concerns about the implications for banking sector stability and economic growth,” Nordvig wrote.

According to Nomura, there are plenty of explanations for this, including the fact that the Spanish economy is more leveraged than Indonesia’s and the currency union allows very large capital movements to take place.

Data from the Bank of Spain, which Nomura highlighted, showed foreigners were large sellers of Spanish securities in the latest quarter, which generated an outflow of 19.4 percent of GDP. There was also a large outflow from Spanish residents accumulating foreign bank claims. In the latest quarter, the outflow from this source was 16.7 percent of GDP.

Spain is now front and center in the latest round of the euro zone debt crisis but the Spanish government has so far resisted asking for a bailout from the European Union and other international creditors, except for the aid already agreed to for its banking sector. (Read More: Spain Faces Post-Holiday Detox as Time Runs Out)

But Nomura’s economics team believes that Spain won’t be able to avoid a full-blown bailout, which would include a more active role of the ECB in the Spanish bond market.

“The scale of capital flight that took place over the last few months in Spain supports this view,” Nordvig said.

Italy and Spain Diverge

The capital outflows also show that Spain’s fortunes seem to be worsening much faster than those of Italy, a country with a much higher debt-to-GDP ratio.

“In Italy's case, both portfolio outflows and other investment outflows represent a touch more than 5 percent of GDP. For Spain, both sources of outflows are much larger; about 20 percent of GDP in the case of portfolio outflows and about 30 percent in the case of other investment outflows,” Nordvig said.

Nordvig also pointed out that while bank deposits had fallen at Spanish banks, they had remained quite stable at Italian banks

Comments from New Zealand's Bernard Hickey

Spain: another banking bailout

Spain's Bankia to receive immediate aid after huge loss

Spain's national bank rescue fund said on Friday it will inject emergency liquidity into troubled lender Bankia (BKIA.MC) immediately after the bank reported losses of over 4 billion euros ($5 billion) in the first half of 2012

Reuters,

31 August, 2012

Bankia, nationalised by the Spanish government in May, lost 4.448 billion euros in the six months to end-June after provisioning 2.7 billion euros in the second quarter against bad debt and assets.

Spain's Fund for Orderly Bank Restructuring (FROB) said it would inject capital into Bankia immediately as an advance on European aid negotiated by Spain for its ailing banking sector in June. It did not specify how much capital would be given to Bankia.

"I am very satisfied with what the European and Spanish authorities have said because it means there is big support for our project," said Bankia Chairman Jose Ignacio Goirigolzarri.

A financial sector analyst in Madrid said Bankia's poor results were expected and that a capital injection from the FROB had also been seen as a possibility.

"The results are very bad, the provisions have really ruined the results, but in operating terms they are more or less what we were expecting," said the analyst, who asked not to be named.

MONEY OUT

Bankia, Spain's fourth largest lender after seven different savings banks were merged into one in 2010, said private sector deposits fell by 8.3 billion euros to 98.844 billion euros in the first six months of 2012.

The bank's bad loan rate reached 11 percent at end June, compared to 7.6 percent at the end of 2011.

Spain negotiated a 100 billion euro European Union rescue for its wobbly financial sector in June but Bankia had yet to receive any funds when it reported first half results.

The government also on Friday created a so-called bad bank to take over tens of billions of euros in defaulted loans and unsaleable property and to accelerate the clean-up of the banking sector.

Banks have had to take huge write-downs on toxic property assets in line with provisions ordered by the Spanish government, resulting in steep falls in profit even for relatively sound lenders such as Banco Santander (SAN.MC).

Capital outflow in Spain jumped almost 40 percent year-on-year in June, data showed on Friday. Capital outflow was 56.6 billion euros in June, compared to 41.3 billion euros in May.

BFA, Bankia's holding company, reported a net loss of 2.8 billion euros. ($1 = 0.7933 euros)

Spanish Farce

Bankia Valued at EUR -13.635 Billion; Spain Becomes Sole Owner, Shareholders Totally Wiped Out; Entire Bankia Board Resigns

Mish's Global Economic Analysis,

28 June, 2012

Five days ago we heard from the Bank of Spain that Spanish banks only need between €16bn and €62bn in new capital.

For details, see Laugh of the Day: Stress Tests Show Spanish Banks Only Need Between €16bn and €62bn in New Capital; ECB to Accept BBB- Rated Debt (One Step Above Junk) as Collateral

In the same report we also heard that the three largest bank groups do not need any capital at all. Bear in mind that was allegedly in a "stress" scenario.

Today we learned that Bankia is Valued at EUR -13.635 Billion 

 The seven banks that founded Bankia be left out of the shareholders of the entity and the State will be made with one hundred percent of the group's parent, Bank Savings Financial (BFA), the latter having a negative value of 13.635 million euros According to the assessment commissioned by the state.

After the assessment, the FROB becomes the sole owner of BFA.

Thus, the seven savings banks that created the group, Caja Madrid, Bancaja, La Caja de Canarias, Caja de Avila, Laietana Caixa, Caja Segovia and Caja Rioja, stay out of the shareholders.

Finally, BFA proceed to recapitalize its subsidiary, Bankia, with an injection of 12,000 million euros. He will do through a capital increase in which existing shareholders will have preferential subscription rights. It is expected that the capital increase in Bankia be completed during October.

The European Commission today gave its approval temporary nationalization and recapitalization of the matrix BFA waiting for Spain to send to Brussels a restructuring plan of the institution in the next six months.

I strongly suspect that a valuation of -13.635 billion euros is on the wildly optimistic side.Entire Bankia Board Resigns

Here is an amusing picture from the El Pais article The assessment shows a group of Bankia 13.635 billion hole

El Pais reports ...

 The group Bankia worthless. Worse, his assessment is negative, -13.635 billion euros. That is the appraisal on the face of nationalization has been presented today to the board of the entity, sources of such advice. That means that the conversion of the 4.465 million of preferred shares of Bank Savings Financial (BFA) results in 100% nationalization of the matrix and, indirectly, 45% of Bankia, but the assessment does not directly affect the bank quoted. The BFA board of directors resigned en bloc.

The seven savings banks that are BPA was created without any equity in the state, leaving them no future dividends to be used for social work . The entities concerned are Caja Madrid, Bancaja, La Caja de Canarias, Caja de Avila, Laietana Caixa, Caja Segovia and Caja Rioja. The seven contributed to its financial business BFA and are now nothing more than the assets of the work were marginalized social integration.

Did they all retire with full pensions?

Looking back, Bankia has provided more laughs than I remembered.

May 7, 2012: Spain to Spend €7bn-€10bn (It Doesn't Have), Bailing Out Bankia, the Nation's 3rd Largest Bank; Liar, Liar Pants on Fire

May 9, 2012: Audit Shows Spain's Bankia Short 3.5 Billion Euros; PP says "We Must Help Bankia, It Has Deposits for 10% of GDP"

May 10, 2012: Spain Nationalizes BFA and 45% of Bankia; No Bid for CatalunyaCaixa, Bank Worth Less Than Zero; Der Spiegel: Germany Fears "Bottomless Pit"

 The implosion in Spanish banks continues. On Wednesday, Spain nationalized BFA, the 8th nationalization since the start of the crisis.

After sinking 3 billion into CatalunyaCaixa, Spain tried to privatize the mess but there were no offers at zero euros. Clearly CatalunyaCaixa bank is worth less than zero.

Meanwhile Der Spiegel reports "Bundesbank has no idea of what is happening in Spanish banks". Mish readers do. The Spanish banking system is without a doubt bankrupt.

Emphasis added.
Today we see that Bankia and the entire group is worth less than zero.

Further Spanish downgrades

Moody's cuts ratings of 28 Spanish banks

Ratings agency Moody's has cut the ratings of 28 Spanish banks following a June 13 downgrade of Spain's sovereign rating by three notches.

RT,

26 June, 2012

The banks' long-term debt and deposit ratings have been downgraded by one to four notches. The rating of Bankia, one the country’s largest banks, has been cut to junk status.

Moody’s cited two main factors behind the move: the agency’s assessment of Spain's reduced creditworthiness, and an “expectation that the banks' exposures to commercial real estate (CRE) will likely cause higher losses, which might increase the likelihood that these banks will require external support.”

Spanish banking problems have become the major problem for the euro zone after the collapse of the Spanish housing sector in 2008 created a huge number of bad debts.

The Spanish government has formally requested European aid of up to €100 billion for its troubled banking sector.

“The final amount of the financial assistance would be estimated later but should be enough to cover all the banks' needs and add some buffer from potential risks”, the country’s Economy Minister Luis De Guindos said in the letter to Eurogroup head Jean-Claude Juncker. 

 

The funds will be made available to Spain’s own bank bailout fund, the FROB, and then will be transferred to the banks, according to de Guindos. Further details will be announced July 9 as an official a Memorandum of Understanding for the package will be issued.

Meanwhile independent auditors revealed the results of a check on Friday saying Spain's banks would need about 62 billion euros in the worst case scenario, far less than 100 billion package asked for by the Government.

On June 13 Moody's slashed Spain's sovereign credit rating by three notches from A3 to Baa3, and said it had placed the country "on review for further downgrade."

On Monday the yield on the country's 10-year bonds has surpassed 7 percent, the level that pushed Ireland, Portugal and Greece to the breaking point, although it now has fallen back to a still alarming 6.5 percent or so.

The markets

Stocks, commodities hit by Europe woes

SMH,

31 May, 2012

Benchmark US Treasury yields fell to their lowest levels in at least 60 years Wednesday and stocks and commodities sold off as fears over the deepening euro zone debt crisis gripped investors.

The Dow Jones industrial average dropped 161.13 points, or 1.28 per cent, to 12,419.56. The S&P 500 Index fell 19.15 points, or 1.44 per cent, to 1,313.27. The Nasdaq Composite lost 33.63 points, or 1.17 per cent, to 2,837.36. European and global shares fell more than 1 per cent.

Australian shares are poised to rejoin the slide, with the SPI futures recently off 39 points, or about 1 per cent, to 4047 points. The benchmark S&P/ASX200 index yesterday fell 20.2 points, or 0.5 per cent, at 4094.2, while the broader All Ordinaries index fell 19.4 points, or 0.5 per cent, to 4148.8.

The Australian dollar was almost one US cent lower, sinking to 97.1 US cents in recent trade. It was also buying 78.5 euro cents, 62.7 pence and 76.8 yen.

Spain's stock market hit a nine-year low as the country's borrowing costs rose to near the 7 per cent level that had forced other euro zone nations to seek bailouts.

In Greece, the outcome of an election next month that may decide whether it remains in the euro was still uncertain as polls showed parties for and against a bailout neck-and-neck.

"The politics in Greece is combustible but the systemic importance of Spain is far greater," said Stephen Wood, chief market strategist with Russell Investments in New York, which oversees $US141 billion. "This is an ongoing drama that will not go away any time soon."

The benchmark 10-year US Treasury note was up 35/32, its yield at 1.6288 per cent - the lowest since the 1940s.

European stocks, tracked by the FTSEurofirst 300 index , closed 1.5 per cent lower at 975.74, having traded 105 per cent of its 90-day volume average. The blue-chip Euro STOXX 50, which fell 2 per cent, traded 70 per cent of its volume average.

Spanish bonds

Spain's Ibex 35 index fell 2.8 per cent, its lowest since 2003.

MSCI's all-country world equity index shed 1.65 per cent.

The yield on Spain's 10-year benchmark was at 6.675 per cent. Italy's funding costs rose sharply at a bond sale, with 10-year yields topping 6 per cent for the first time since January.

The euro neared a two-year low as Spain's central bank governor said the government would miss its deficit target this year.

"Uncertainty remains high and headline risk is likely the key driver," said Camilla Sutton, senior currency strategist at Scotia Capital in Toronto. "The fear is that we only have Band-Aid solutions, and we still don't have a medium-term plan for Europe."

The European Commission threw Spain two potential lifelines, offering more time to reduce its budget deficit and offering direct aid from a euro zone rescue fund to recapitalize distressed banks.

The euro was last down 0.8 per cent at $US1.2400 after touching $US1.2384, its lowest level since early July 2010. It also fell against the safe-haven yen, losing nearly 1.4 per cent to trade near 97.90 yen, a four-month low.

The euro's weakness underpinned the dollar index, which measures the US dollar against a basket of major currencies. The index rose above 82.923, its highest since September 2010.

The rise in the dollar, as well as fears over the European debt crisis, dragged down commodities. Copper and platinum both sank to 4-1/2-month lows as investors piled into safe havens.

"As we've seen during other periods of extreme risk aversion, investors go into Treasury bonds, which are yielding record lows, or they stay in cash. It's preservation of capital," said analyst Robin Bhar at Societe Generale in London.

Oil lost about $US3 a barrel. London's benchmark Brent crude hovered at around $US103, breaching the $US105 support level. US crude in New York traded below $US88, or under the $US90 support.

Gold, which serves as an alternative play to the US dollar, was down 0.8 per cent at below $US1,568 an ounce.

Arabica coffee closed at a 21-month low while US cotton was headed to finish at a 27-month bottom.