Euro Falls as Credit Market Losses Erode European Bank Earnings

By Kosuke Goto

Oct. 30 (Bloomberg) -- The euro snapped five days of gains versus the dollar on speculation credit market losses at European financial companies will weaken the case for the central bank to raise interest rates.

Europe's single currency fell before UBS AG reports third- quarter results today and Deutsche Bank AG tomorrow. UBS, Europe's largest bank by assets, said yesterday a slumping U.S. housing market and defaults on mortgages to borrowers with poor credit histories may lead to further writedowns.

``European firms' earnings could reignite concern over subprime-related losses,'' said Yuuki Sakurai, investment planning manager in Tokyo at Fukoku Mutual Life Insurance Co., which manages the equivalent of $41.5 billion in assets. ``The euro has a downside event risk and some investors even may sell it before the actual announcements to lock in profits.''

The euro declined to $1.4390 at 9:56 a.m. in Tokyo from $1.4425 late in New York yesterday. It also dropped to 164.87 yen from 165.38 yen. Europe's single currency may weaken to $1.4350 against the dollar today, Sakurai said.

UBS yesterday reiterated an estimate that it recorded a third-quarter loss of between 600 million francs ($516 million) to 800 million related to defaults in U.S. subprime mortgages. It will release detailed third-quarter results today.

Investors are betting the European Central Bank will raise its benchmark rate from 4 percent this year, interest-rate futures show. The implied yield on the December Euribor contract was at 4.505 percent yesterday. The contract settles to the three-month interbank offered rate for the euro, which has averaged about 18 basis points above the ECB's key rate.