NEW YORK, Feb 6 (Reuters) - The euro dropped against
the dollar on Monday as Greece's political leaders
delayed a decision on a new bailout package, raising concerns of
a disorderly default that could spread to other debt-ridden
countries in the region.
A European Commission spokesman said Greece was already past
the deadline for finalizing talks on a second financing package
and needed to move urgently.
German Chancellor Angela Merkel told Greece to make up its
mind quickly on accepting the painful terms for a new EU/IMF
bailout, but the country's political leaders responded by
delaying their decision for yet another day.
"Headlines out of Europe are affecting sentiment on the
euro. Earlier, we had hit stop losses in the euro and we saw it
trim some losses. But it's more of the same," said Brian Dolan,
chief currency strategist at Forex.com, as investors waited on
Greece.
Greece's coalition members must agree to painful terms of
the bailout before euro zone finance ministers next meet. A
meeting of political leaders in Athens was postponed to
Tuesday. Greece needs the funds by March to meet big debt
repayments.
The euro was last down 0.1 percent at $1.3128
after hitting a low of $1.3026 after stop-loss orders were
tripped below $1.3050.
If the impasse in Greece persists, the euro could target
$1.3026, the Feb. 1 trough, and more stop-loss orders were said
to be below $1.3020.
Nomura Securities analysts said they believe a Greece deal
is close, both in terms of the private sector involvement
process and in relation to negotiations with its lenders around
key program parameters.
"Since the implications of bad versus good news is clearly
asymmetric (a bad outcome could have severe implications), it is
a tough set-up to trade with confidence," Nomura said.
"Nevertheless, we believe a 'good' outcome is likely in the very
short term. We are therefore inclined to keep a risk
constructive bias within our portfolio at this time."
Nomura said EUR/USD at $1.25 is a reasonable target for the
first quarter, adding it would not be surprised to see a squeeze
higher in the very short term given the still very elevated
speculative shorts.
The IMF's chief economist, Olivier Blanchard, said on
Monday it looks like the "haircut" on Greek private debt
will be "very large" as negotiations between bondholders and the
government drag on.
CitiFX, a division of Citigroup, said even with all the
uncertainty about Greece, the euro has still managed to hold its
ground pretty well.
CitiFX saw two potential explanations. First, investors may
still expect an agreement will ultimately be reached. Second,
they may think Greece is too small to matter.
"We have long argued that investors are ignoring Greece at
their own risk," the bank said. "We think that the risks of a
credit event in Greece are non-negligible and that the
uncertainty about both the second Greek bailout package and
(private sector involvement) is here to stay.
"We also suspect that a potential Greek default could
unleash contagion to other fiscally weak countries in the euro
zone periphery and lead to extensive FX volatility for a period
of time."
Against the yen, the euro fell 0.1 percent to 100.54 yen
while against the safe-haven Swiss franc, it was 0.1
percent lower at 1.2062 francs, not far from the Swiss
central bank's cap at 1.20 francs per euro.
The dollar was little changed against the yen at 76.58 yen
, having earlier risen to 76.79 yen, its highest in
over a week. 
2:03 PM
US A MA
