* Relief impact of emergency aid package prove temporary
* Euro <EUR=> falls 0.8 percent to $1.2680
* Focus back on structural problems plaguing euro zone
(Adds quote, detail)
By Neal Armstrong
LONDON, May 11 (Reuters) - The euro fell on Tuesday as the
relief rally unleashed by an emergency aid package to prevent
the spread of a euro zone debt crisis dissipated and the focus
switched back to structural problems plaguing the bloc.
European Union finance ministers, central bankers and the
International Monetary Fund hammered out an emergency package of
loan guarantees to euro zone members over the weekend to shore
up sentiment in bond markets and the euro. []
"Risk is back off and the euro is weak across the board.
Concern is creeping in as to whether southern European countries
can fulfil their budget requirements," said Niels Christensen,
currency strategist at Nordea in Copenhagen.
"With the fiscal tightening that will be needed there is a
risk of lower euro zone growth and that the European Central
Bank will start raising rates later than previously expected.
This is all playing into a negative environment for the euro."
The "shock and awe" plan initially propelled the euro
<EUR=> close to $1.31 on Monday and off a 14-month trough around
$1.2510 last week when investors feared the sovereign credit
crisis could spread from Greece to other euro zone countries.
At 1125 GMT, the euro traded down 0.8 percent at $1.2680
<EUR=>, taking it substantially below Monday's high, with
traders noting sales from macro accounts. Poor liquidity was
said to be exacerbating moves.
Moody's Investors Service said on Monday it may still
downgrade Portugal and Greece's rating could fall to junk grade,
a comment Christensen said highlighted that the rescue package
had "not resolved the crisis". []
The options market was showing a clear bias for euro
downside. The one-month risk-reversal <EUR1MRR=ICAP> was trading
at 3.00 for euro puts versus 2.65 on Monday, moving beyond the
previous record seen at the peak of the Lehman crisis.
QUESTIONS
Analysts said uncertainty over the details of the EU/IMF aid
package were also weighing on the single currency.
"There are question marks regarding the details of the
package, such as how bond purchases would be sterlised. Negative
sentiment over the currency persists and it should remain under
further pressure," said Paul Mackel, director of currency
strategy at HSBC.
Political uncertainty put pressure on sterling as Britain's
two big rival political parties resumed courting the smaller
Liberal Democrats after last week's inconclusive election.
[]
Sterling fell 0.8 percent <GBP=D4> to $1.4729.
The low-yielding yen posted strong gains, reversing some of
the previous day' losses, as concerns over the euro zone debt
crisis sparked renewed risk aversion among investors, with
European stocks <> down around 2 percent.
The dollar was down 1 percent at 92.33 yen <JPY=>. Traders
said the yen was helped by Japanese exporters selling other
currencies. The euro fell 1.8 percent to 117.05 yen <EURJPY=R>,
a day after jumping around 4 percent.
The yen remained within its recent wide trading ranges,
however. Over the last week, dollar/yen has traded between a
high of just below 95 yen and a low of 88.00 yen.
The U.S. dollar also benefited from safe haven flows, with
the dollar index <.DXY> up 0.7 pct at 84.713.
(Additional reporting by Jessica Mortimer)
