Euro falls

LONDON: The euro fell towards a two-month low after the European Union criticised Italy´s spending plans, raising fresh concern about a conflict within the common currency zone.

Political wrangling over the budget in heavily indebted Italy has seen the euro weaken over 1 percent versus the dollar this week.

The European Commision on Thursday sent Rome a letter calling a draft budget an "unprecedented" breach of EU fiscal rules, the first step of a procedure that could end with Brussels rejecting the budget and fining Italy. The single currency fell to an intra-day low of $1.1433 close to a two-month low of $1.1432 hit on October 9. At 1100 GMT it traded 0.1 percent up on the day at $1.1464.Italy is the third-largest economy of the 19-country euro zone, and a crisis there could unsettle the entire bloc.

The gap between Italian and German 10-year bond yields reached its widest in 5 1/2 years after news of the Commission letter broke. "The euro is already suffering considerably, and that could get worse if the crisis really gets going, as the dollar is now providing attractive yields," said Ulrich Leuchtmann, a currency strategist at Commerzbank.

Analysts at MUFG said that if BTP yields moved notably higher "correlations could well strengthen and this would provide further downside pressure for the euro".