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Euro slides to 18-month low as growth fears intensify

The euro declined to an 18-month low against the dollar on growing worries that deep government spending cuts in the euro zone would stifle a fragile recovery.

After climbing close to $1.31 following last weekend's agreement of a $1 trillion emergency rescue package, the euro has come under renewed pressure as focus shifted to the impact on growth from fiscal tightening in countries like Greece, Spain and Portugal.

“If you look long-term, everyone is worried about what these austerity measures will mean in terms of growth,” said Kathy Lien, director of currency research at GFT in New York.

Expectations have grown that the euro zone's fragile economies will force the European Central Bank -- which started buying the region's government bonds this week -- to keep interest rates low for a prolonged period of time.

“Interest rate differentials moved against the euro as the ECB started buying bonds and markets have priced out interest rate hikes. That's driving the euro lower,"” said Marcus Hettinger, global FX strategist at Credit Suisse in Zurich.

In early New York trading, the euro was down 0.3% at $1.2490. It had earlier fallen as low as $1.2432 on electronic trading platform EBS, its weakest since November 2008, led by aggressive selling from macro hedge funds.

Traders said large option-related stop-loss orders at $1.2499 and $1.2450 accelerated the currency's slide, adding that the next key level to watch is the October 2008 low around $1.2330.

The euro has fallen nearly 13% against the US dollar this year, making it the biggest loser among major currencies.

The single euro zone currency also lost 0.5% to ¥115.52, while it held steady at 1.4013 Swiss francs, near Thursday's all-time low, with investors wary of potential Swiss National Bank intervention.

Against the yen, the dollar fell 0.2% to ¥92.48.

The ICE Futures US dollar index, which tracks the value of the greenback versus a basket of major currencies, hit a one-year high at 85.873. (Reuters)