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. Last Updated: 07/27/2016

Euro Plumbs Fresh Depths on Kosovo News




LONDON -- The euro hit fresh lows against all major currencies Monday as the foreign exchange market succumbed to an attack of jitters over the suspension of talks to end the Kosovo war.


The European single currency fell to record lows against the dollar, yen and sterling amid disappointment over the stalled Kosovo peace talks, but clawed back some losses on news that lower-level Serb-NATO contacts might resume.


European government bonds, also stung by Kosovo, opened sharply lower after NATO said its bombing would intensify but rebounded modestly later.


Equities put aside worries over Kosovo and chalked up healthy gains, kick-started by Friday's late rally on Wall Street. New York also made solid gains at the opening.


The euro suffered its fourth straight session of falls, hitting $1.0260 after the Kosovo talks stalled, but edged up to stand around $1.0290 in late afternoon trade.


It also climbed slightly against the yen after slipping to a new low of 123.89. The euro reached a low of 63.83 pence against sterling before inching back up above 64.00.


"Lack of progress in talks regarding troop withdrawal from Kosovo over the weekend led to selling of euro/dollar in Asia," said Ben Strauss, vice president at Bank Julius Baer in New York.


Some signs of economic life from the euro-zone also helped underpin the euro a little in afternoon trade.


German April manufacturing orders posted an unexpectedly strong pickup of 3.3 percent, although the Finance Ministry said the figures would probably be revised down.


A report from Eurostat, the European Union's statistical agency, showed unemployment in the 11-nation euro-zone fell to 10.4 percent in April from 10.5 percent in March.


"You do have a touch more improved outlook in the euro-zone," said Mike Malpede, senior foreign exchange analyst at Refco Group Ltd.


But Malpede added that, for now, the situation in Kosovo was likely to remain the dominant focus for the markets.


The currency's drop followed a brief bounce Friday when it seemed that a Kosovo peace deal had been struck, but in the early hours of Monday, it was hammered by the collapse of talks.


In equities, the buoyant performance in New York on Friday, with the Dow up 136 points or 1.3 percent, gave London, Paris and Frankfurt a lift in the morning session.


The bullish mood was helped when the Dow opened firmer Monday. It was up 0.5 percent just after European share trading ended.


London's FTSE 100 index ended 0.8 percent higher, the sixth straight session showing gains, lifted by telecommunications stocks as well as the optimism on the other side of the Atlantic.


Vodafone was up 4.5 percent ahead of Tuesday's results and Energis rose 4.8 percent on talk of a possible bid from Deutsche Telekom. Deutsche Telekom was up 2.6 percent in Frankfurt although it called the reports speculation.


Leading pharmaceutical stocks also advanced as the sector extended a recovery from recent weakness. Heavyweight Glaxo Wellcome, which fell to a seven-month low last month, was up 2.1 percent while SmithKline Beecham rose more than three percent.


Dealers said bid and merger stories, real or rumored, had provided some momentum for the day's activity, outweighing the failure of peace talks in Kosovo and weakness in the euro.


In Frankfurt, the benchmark Xetra DAX index gained 1.7 percent in thin trade as Deutsche Telekom and retailer Karstadt gave the market something to cheer about.


Karstadt closed up 7.6 percent, with some traders saying the stock looked undervalued ahead of its annual results news conference on Tuesday and before a planned merger with mail order group Quelle.


Paris gained 1.38 percent, boosted by Wall Street. Canal Plus shot 6.9 percent higher as investors speculated that a link with BSkyB was more likely following news that Vivendi was to merge with Pathe and take its stake in BSkyB.