Kiwi falls as Spanish woes erode confidence for global recovery

BUSINESSDESK: The New Zealand dollar fell in local trading as Spain's deepening debt crisis eroded investor confidence in the global recovery, sapping appetite for riskier or higher-yielding assets.

The kiwi fell to 79.40 US cents at 5pm from 79.70 cents at 8am and 79.93 cents on Friday in New York. The trade-weighted index dropped to 72.07 from 72.40 last week.

Stock markets across Asia fell after Spain's Valencia region says it will seek emergency government loans, pushing up bond yields and sparking fears the eurozone's woes may deteriorate further.

Australia's S&P/ASX 200 index was down 1.5% in afternoon trading, while Japan's Nikkei 225 index was down 1.4% and Hong Kong's Hang Seng Index slipped 2.6%.

The kiwi pared its gains from a record high against the euro after the Spanish news, falling to 65.53 euro cents at 5pm from 65.74 cents last week.

"The Spanish news over the weekend shows there's the potential for things to keep on coming, and it going to be around for a while – if it's not the banks it's the regions," said Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney.

"When volatility is low, fundamentals really do shine through, and we've seen that when the kiwi hit a record high against the euro."

Officials from the European Central Bank, the International Monetary Fund and the European Commission will return to Greece this week to decide whether to release more funds from a 130 billion euro rescue package.

Mr Tennent-Brown says now the rescue package details for Spain have been finalised, other nations, such as Ireland, may want to have their own bailout terms reviewed.

With Europe back in the headlines, markets will be watching the eurozone manufacturing figures out tomorrow, ahead of US gross domestic product later in the week.

New Zealand's Reserve Bank will review monetary policy on Thursday and is expected to keep the official cash rate at 2.5%, according to all 15 economists in a Reuters survey.

Traders are betting the central bank will cut the rate 14 basis points over the coming year, according to the Overnight Index Swap curve, with more deterioration in Europe the most likely trigger.

The kiwi was little changed at 76.96 Australian cents from 76.93 cents last week and fell to 62.11 yen from 62.71 yen. It dropped to 50.96 pence from 51.13 pence on Friday.