By Nicholas Hastings
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--The euro's recent rally faltered in Europe Monday, sending the single currency a little lower and helping the dollar to rebound, due to fresh fears over Greece's ability to continue funding its budget deficit.
See the euro's rise falter:
http://www.dowjoneswebservices.com/chart/view/3480
Over the weekend, Greek Prime Minister George Papandreou helped to focus attention on the issue when he said that Greece needs help so that it can borrow like other countries, not at high rates that will undermine its ability to pay.
This comes as the market waits to see if the country's public debt management agency launches a EUR5 billion 10-year bond issue as expected this week.
The pricing of the issue will be key for reassuring the market about Greece's ability to continue raising funds.
"Any consequent widening of bond spreads is likely to hurt the euro once again," said Gareth Berry, a currency strategist with UBS AG in Singapore.
The euro was also knocked by a denial from the German Finance Ministry of a story in German magazine Der Spiegel, claiming that Germany is considering an aid package of as much as EUR25 billion for Greece.
In his interview with the BBC at the weekend, Papandreou also admitted that Greece's borrowing needs are only covered until mid-March.
So after early gains, the euro turned down again with investors showing less appetite for risky asset markets. This was reflected in stocks with gains in most Asian markets followed by small losses in most European bourses.
Apart from fluctuating sentiment towards the euro, currency markets were also facing some uncertainty over U.S. interest rates. A surprise hike in the U.S. discount rate last week initially lifted the dollar as speculation over a rise in the Federal Reserve funds target rate increased.
However, Friday's data showing a 0.1% fall in core U.S. consumer prices last month quickly reversed all that as the figures signal there is little pressure on the Fed to move just yet.
The market will now be looking to see how Fed officials view policy in a number of speeches scheduled for this week. These include Fed Chairman Ben Bernanke's testimony Wednesday and Thursday to the Senate, in which he is expected to repeat that the discount rate hike was only an indication of the normalization, rather than a tightening, of monetary policy.
At 1045 GMT, the euro, which had earlier risen to $1.3655, fell back to $1.3603, down from $1.3613 late Friday in New York, according to EBS,
The euro is also down at Y124.23 from Y124.64 after rising to Y125.28. The dollar is down at Y91.35 from Y91.65.
The dollar was slightly higher at CHF1.0769 from CHF1.0767, while the pound was lower at $1.5457 from $1.5467.
(END) Dow Jones Newswires