Euro falls amid worries over Spain

12:43, May 25, 2010      

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The euro fell against the dollar on Monday as a rescue of a regional bank by the Bank of Spain sparked worries over the country's banking sector.

The Spanish central bank on Saturday took over troubled savings bank CajaSur after its planned merger with another small lender Unicaja failed.

CajaSur accounts for scarcely 0.6 percent of the assets of the Spanish banking system, whose soundness will not be in the slightest affected by this situation, the Bank of Spain said in a statement.

CajaSur will now have access to the Spanish Fund for Ordered Bank Restructuring (FROB), which was set up last June to prevent possible systemic risk. It was reported that the FROB would inject at least 500 million euros to restore CajaSur's solvency.

Spanish bank's bad loans inflated quickly, touching a 14-year high in February, after a decade-long housing bubble bursted. Bad loans eased in March with the ratio of bad debt to total debt, or non-performing loans (NPL) ratio, dropped to 5.2 percent from 5.3 percent a month earlier.

The bailout renewed worries that the eurozone debt crisis may spread to Spain. The euro slided in Asian and European trading hours on Monday. It gained some grounds in early New York trading but fell back later.

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