BRUSSELS (dpa-AFX) - The European currency erased previous session's gains versus most of its major counterparts in early deals on Wednesday as exceeding loan amount given by the European Central Bank failed to win over market confidence.
The European Central Bank said it will lend euro-area banks 489 billion euros of three-year loans, effective from Thursday. Analysts had expected the loan demand will exceed EUR 300 billion as banks are expected to use cheap cash from the ECB with ultra low interest rate of 1 percent.
The ECB introduced unlimited three-year loans earlier this month to ensure adequate funding for banks, a move that was widely expected to encourage banks to buy government debt.
The major European markets are also pared some of their initial gains, with the French CAC 40 Index is now trading just above its flat line and the German DAX Index is adding 0.73 percent, while the U.K.'s FTSE 100 Index is moving up 0.53 percent.
Risk-appetite resurfaced earlier as Italian and Spanish bond yields fell yesterday, Chinese Premier Wen Jiabao pledged support for exports and encouraging news out of Europe and the U.S. eased concerns over global growth outlook.
In economic news, the Italian economy contracted 0.2 percent quarter-on-quarter in the third quarter, reports said Wednesday citing data from the statistical office Istat. The outcome was in line with economists' expectations and followed a 0.3 percent growth in the second quarter.
On an annual basis, however, the gross domestic product expanded 0.2 percent, weaker than the 0.4 percent growth expected.
The euro reached 1.3074 against the US dollar around 6:00 am ET, having shed by more than 120-pips from an 8-day high of 1.3198 hit almost an hour ago. Immediate support is seen around the 1.3060 level for the euro.
The single currency slipped to 0.8334 against the pound around 6:00 am ET and this set the lowest level for the pair since January 18. The euro-pound pair is presently worth 0.8350 with 0.83 seen as the next likely downside target level.
The pound strengthened after the Bank of England minutes, which showed that the policy makers were unanimous in deciding to maintain status quo in December.
The nine-member Monetary Policy Committee, led by Governor Mervyn King, left the size of bond purchases unchanged at GBP 275 billion and kept the key interest rate at 0.50 percent at the end of the two-day meeting held on December 7 and 8.
Against the yen, the euro depreciated almost 0.8 percent to reach as low as 101.78 around 6:00 am ET from an 8-day high of 102.56 hit around 5:20 am ET. On the downside, 101.60 is seen as the next likely target level for the pair.
The Bank of Japan lowered its assessment of the economy for a second consecutive month at its rate-setting meeting today, citing negative impacts from the ongoing debt turmoil in Europe and the appreciation of yen.
The central bank kept the benchmark uncollateralized overnight call rate unchanged at zero to 0.1 percent, but refrained from boosting stimulus despite weak economic prospects. The asset-purchase program was maintained at JPY 20 trillion, after lifting it by JPY 5 trillion in October. The size of credit facility was left unchanged at JPY 35 trillion.
On the flip side, the common currency advanced to a 2-day high of 1.2214 against the Swiss franc around 6:50 am ET, mainly due to across the board weakening of the latter. The euro-franc pair is presently worth 1.2203 with 1.2250 seen as the next likely resistance level.
Looking ahead, the National Association of Realtors is scheduled to release its report on existing home sales for November at 10:00 am ET. Economists estimate existing home sales of 5.08 million units for the month compared to a seasonally adjusted rate of 4.90 million units in October.
Copyright RTT News/dpa-AFX