Euro hovers close to one-year low against dollar

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The euro moved towards a one-year low against the dollar in Asian trade on Wednesday, amid questions over Europe's ability to contain its sovereign debt crisis.

The unit, which fell below $1.31 in New York late on Tuesday for the first time since January, bought $1.3034 in Tokyo midday trade.

That was slightly higher than $1.3006 on Tuesday before the unit recovered to $1.3033 in New York.

The euro was slightly weaker against the Japanese currency at 101.60 yen, while the dollar was flat, trading at 77.94 yen against 78.00 yen in New York.

The euro may fall further as the market turns risk-averse, said a senior dealer at a major Japanese bank, after a report said Germany is opposed to raising the 500-billion-euro ($652 billion) lending limit for the planned European Stability Mechanism (ESM).

The ESM is to succeed the eurozone's temporary bailout fund, the European Financial Stability Facility, next year.

At a meeting of her ruling party on Tuesday, German Chancellor Angela Merkel signalled to lawmakers that Berlin remained opposed to any increase.

Germany's stance underscores a rift among some European leaders over boosting the fund's firepower and how best to tackle the eurozone's fiscal woes.

The single currency has also taken a hit after ratings agency Moody's warned it would review European Union nations' credit ratings, saying high-level talks last week offered "few new measures" to tackle the crisis.

Fitch Ratings predicted a 'significant' economic downturn in Europe, despite most EU countries agreeing to tighten their budget policing.

Merkel's concerns about boosting the rescue fund's resources weighed on the euro, said National Australia Bank.

"This combined with continuing fears of imminent sovereign credit downgrades for eurozone members to pare earlier stock market gains and send the euro/dollar to an 11-month low," it said.

Euro selling was also propelled by the US Federal Reserve's decision on Tuesday to leave interest rates near zero as it pointed to moderate improvement in an economy still fraught with problems, said the Japanese bank dealer.