Europe - Euro surges after report on eurozone fund

The euro leaped against the dollar on Tuesday, after a British newspaper reported France and Germany had agreed to a fivefold increase in the eurozone rescue fund's firepower and the recapitalisation of Europe's banks.

The euro was traded at $1.3752 around 2100 GMT, up from $1.3734 at the same time on Monday.

The euro also advanced against the Japanese currency, to 105.66 yen compared with 105.51 yen late Monday.

The dollar edged down to 76.81 yen from 76.82 yen.

The common European currency got a lift after The Guardian reported on its website that the leaders of France and Germany have agreed to boost the eurozone rescue fund, the European Financial Stability Facility, to more than two trillion euros ($2.7 trillion), from its current 440 billion euro lending capacity.

The Guardian also reported the eurozone's two biggest economies have agreed that Europe's banks should be recapitalised to meet the 9.0 percent capital ratio that the European Banking Authority is demanding.

The plan would require overall recapitalisation of about 100 billion euros, the daily said.

A few minutes after the article appeared online, the euro spiked to $1.3818, before stabilising.

But there were some doubts, though, with the The Wall Street Journal reporting online that European officials were still debating the size of the EFSF.

Kathy Lien at GFT cautioned that the rumor mill was in full swing, fuelling volatility in the euro.

"We have been regularly surprised by the strong reaction to unsubstantiated rumours because European officials have consistently refuted any reports of progress," she said.

The dollar dropped against the Swiss currency, falling to 0.8983 francs from 0.8992 francs late Monday.

But it strengthened against the British currency, which traded at $1.5713 compared with $1.5739 the prior day.

- AFP/de


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