FOREX DROP :- FOREX-Euro drops versus dollar as debt worries persist

* Geithner urges end to loose talk about euro break-up

* Bank of Portugal cites unreported debts at Madeira

* Funding strains ease after central banks move (Updates prices)

NEW YORK, Sept 16 (Reuters) - The euro dropped on Friday, hurt by a spate of negative news out of Europe ranging from the German chancellor's rejection of a euro zone bond to unexpectedly low private participation in Greece's debt program.

Analysts, however, were unsure as to where the euro is headed going into next week, seeing vulnerability in both directions.

The weak trend could persist, some said, as no new policy initiatives to deal with the euro zone debt crisis came out of the European Union Finance Ministers' meeting on Friday.

On the other hand, other analysts said, it seemed all efforts are being undertaken by individual euro zone governments to ease the region's fiscal problems. The euro, they argued, could stabilize next week and trade above the seven-month lows beneath $1.35 hit on Monday.

"The market probably senses that even though there is no comprehensive solution in the immediate offing, the risks that had been factored in at the beginning of the week have not been prevalent," said Bob Lynch, head of G10 FX strategy at HSBC in New York.

Shares in BNP Paribas (BNPP.PA) and Credit Agricole (CAGR.PA) slumped on Friday, with traders citing talk that ratings agency Moody's could downgrade Italy after the market close on Friday. BNP Paribas and Credit Agricole are the two French banks most exposed to Italy.

The euro was last down 0.7 percent at $1.37851 EUR=EBS, off a one-week peak of $1.39370 hit on Thursday but held above a seven-month trough below $1.35 plumbed on Monday. The euro has gained around 1.6 percent so far this week, its best weekly performance since the week of July 24 on trading platform EBS.

It fell to a session low of $1.37530, with traders saying it extended losses after stop-loss orders were triggered on the break of $1.37700, with more stops at $1.37500.

German Chancellor Angela Merkel's reiteration on Friday of her objection to the introduction of euro bonds, and an unexpectedly low 75 percent participation in Greece's debt initiative, below the 90 percent target, added pressure to the euro. [ID:nB4E7K901L] [ID:nWEA4691].

U.S. Treasury Secretary Timothy Geithner is taking part told EU finance ministers on Friday they should end loose talk about a euro zone break-up and work more closely with the European Central Bank to tackle the debt crisis. [ID:nL3E7KG0KC]

The euro had hit a one-week high after a coordinated move by central banks on Thursday to provide dollars. Funding strains, evident through the cross currency basis swap market, which had hit some euro zone banks, appeared to be easing.

The three-month euro/dollar cross currency basis swap EURCBS3M=ICAP, or the relative premium for swapping euro LIBOR for dollar LIBOR, tightened to minus 88 basis points on Friday, a day after the central banks acted. It narrowed from as wide as minus 115 basis points on Monday.

FED MEETING AHEAD

While investors remain wary of the euro, they are also reluctant to take long positions in the dollar ahead of a Federal Reserve meeting next week, where policymakers may flag another round of quantitative easing to boost the economy.

That move should weigh on the dollar and help riskier assets rally, although analysts said some market players thought "Operation Twist" was the more likely outcome.

In such a scenario the Fed would buy longer-dated Treasury bonds and sell shorter-dated ones to keep rates at the longer end lower without expanding the balance sheet.

The ICE Futures' dollar index was last up 0.5 percent at 76.633 .DXY. Against the yen, the dollar was up 0.2 percent at 76.870 yen JPY=EBS. The threat of Japanese intervention has helped keep dollar/yen in a tight range and above its all-time low of 75.94 yen. (Reporting by Gertrude Chavez-Dreyfuss and Wanfeng Zhou; Editing by Chizu Nomiyama )

SOURS :- reuters.com

I WORLD FOREX NEWS :- Euro Falls On Lack Of Greek Resolution

The euro fell Friday, after a closely-watched European Union finance ministers meeting failed to produce an agreement on how to resolve the Continent's intensifying debt woes.

A meeting in Wroclaw, Poland, between euro zone finance officials exposed the deep divisions that have characterized efforts to prevent Greece's financial issues from reverberating across the world economy. With investors seeking resolution to the long-running saga, ministers postponed until next month a decision to release more money to the cash-strapped Hellenic republic.

Despite a surprise move Thursday by five major central banks to flood European banks with dollars, markets are still unconvinced that the financial distress battering markets will be alleviated anytime soon. In addition, all euro zone parliaments must ratify a move to increase the size of the European Financial Stability Fund, and the outcome is far from guaranteed.

"Greece has a substantial problem, perhaps an insoluble one," said David Feldman, President and co-chief investment officer at investment firm Palladiem Partners, L.P. "I don't see an easy exit for them."

The lack of a permanent solution means the probability of a disorderly default are "uncomfortably close to 50/50," he added. That would heap further pressure on the euro, which just this week sank to a near seven-month low below $1.35.

Late Friday, the euro was at $1.3802 from $1.3875 late Thursday, according to EBS via CQG. The dollar was at Y76.82 from Y76.70, while the euro was at Y105.91 from Y106.45. The U.K. pound was at $1.5788 from $1.5804. The 0.8763 from CHF0.8693.

The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 76.552 from about 76.277.

U.S. Treasury Secretary Timothy Geithner attended the EU meeting Friday. He called on euro zone nations to overcome damaging divisions and remove "catastrophic risk" from markets.

EU finance chiefs did agree on a compromise to increase economic governance and prevent another crisis. However, they failed to give investors any clarity on the current crisis menacing Greece and threatening Italy and Spain.

Italy--the euro zone's third largest economy--just passed a package of austerity measures designed to prevent investors from punishing its sovereign debt in the same manner of Greece, Ireland and Portugal. But analysts are nervously awaiting an imminent decision from Moody's Investors Service on whether Italy will suffer a downgrade of its sovereign credit rating.

"Italy is not Greece," said Steve Wyatt, finance chair of the Farmer School of Management at Miami University. But with its heavy debt and sluggish growth, "there's a real worry of infection into a place like Italy, which???has to get its fiscal house in order and needs breathing room."
SOURS :- http://online.wsj.com