NEW YORK, May 20 (Reuters) - The euro tumbled against the dollar on Friday after four straight days of gains, stung by a cascade of negative news on Greece, ranging from a Fitch rating downgrade to Norway suspending a grant payment.
The Greece headlines also prompted a sell-off in stocks, commodities, and high-yielding currencies and focused investors on a key $1.40 level for the euro.
News that Norway suspended payment of a $42 million grant to Greece for failure to comply with its commitment triggered the sell-off in the euro. Speculation that Finland, a European Union member, would do the same followed. See [ID:nOSL016301].
Fitch downgraded Greece's long-term foreign and local currency rating to B-plus from BB-plus and warned of even further downgrades if the EU and the International Monetary Fund do not come up with a credible plan to resolve the country's debt crisis. [ID:nATH006085]
A Greek daily also reported that the IMF has suspended its review of Greece until the government has drawn up further austerity measures and after it has made initiative to privatize state-owned assets. A suspension could mean a delay in the disbursement of much-needed IMF funds for Greece.
"The news has been tough all day for the euro. People were starting to buy the euro the last few days and then we got all these news and then the euro just gave way," said Richard Franulovich, senior currency strategist, at Westpac in New York.
In midday New York trading, the euro was last at $1.4191 EUR=EBS, down 0.9 percent on trading platform EBS, although on the week it was still up 0.7 percent. It hit a session low of $1.4139 after earlier hitting a high for the day at $1.4345.
Traders said the market will be focused on Friday's close for the euro. A close below Thursday's would stall the euro's retracement rally from the seven-week low hit last Monday, suggesting the market may have seen the top in the single currency for now.
The onslaught of Greek news almost overshadowed anxiety over Spain's upcoming regional election this weekend.
Spain's Socialist government faces major losses to the center-right opposition Popular Party, and analysts are wary that there could be the potential for unearthing of unknown financial problems. [ID:nLDE74F1GL]
Traders also said news Hungary has agreed with banks to fix a below-market rate on Swiss franc-denominated mortgages has pressured the euro/Swiss franc pair. Hungary will use an exchange rate of 180 forints per franc, far below the current market rate of 215.84 CHFHUF=. See [ID;nLDE74J14T].
Westpac's Franulovich said there are a ton of stops below 1.24 in the the euro/Swiss franc pair, which if triggered could further undermine euro/dollar.
So far that 1.24 level has held in the euro/Swiss franc pair, currently down 1.2 percent at 1.2451 EURCHF=.
In line with euro weakness, the spread between peripheral bonds and German Bunds widened on Friday. The 10-year Greek/German yield spread expanded nevertheless by about 58 basis points, while the Spain/Bund 10-year yield spread traded at its widest since mid-January at around 239 basis points, up 11 basis points.
The euro also fell against the yen EURJPY= to trade 0.8 percent down at 115.86 yen, although it stayed well above a recent two-month low near 113.40 yen.
The dollar recovered earlier falls to trade up against a basket of currencies .DXY, 0.6 percent higher at 75.554, though it stayed below a recent peak of 76.00 struck earlier this week.
The dollar was little changed against the yen at 81.64 yen JPY=. Traders cited talk of dollar bids from Japanese retail traders near 81.30 yen, while some offers from such household investors were said to be lurking at 81.80 yen and above.
The Bank of Japan kept policy unchanged, holding interest rates steady in a zero to 0.1 percent range on Friday. But in surprise move, Deputy Governor Kiyohiko Nishimura dropped a proposal to loosen policy further. (source : reuters.com)