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The euro was 0.4 percent from a 16- month low against the dollar on speculation European Central Bank policy makers won’t take steps today to support growth even as reports signal the euro-area economy is struggling.

The 17-nation currency held a drop from yesterday versus the yen before figures estimated to show European output shrank in November. Demand for the euro was limited before Spain and Italy sell debt today, amid concern the nations will struggle to meet funding needs. The yuan fell for a seventh day, the longest losing streak since 2006, on speculation U.S. pressure on China to strengthen its currency is lessening.

“The Europe contagion story will linger around for quite a bit longer,” said Matthew Brady, executive director for foreign exchange at JPMorgan Chase & Co. in Sydney. “There’s the ECB, as well as the Spanish and Italian auctions today, so it should be interesting to see whether there’s demand. If they don’t go off well, I think certainly the euro will be under pressure.”

The euro traded at $1.2712 as of 6:40 a.m. in London from $1.2707 yesterday in New York, when it slid to as low as $1.2662, the weakest level since September 2010. It fetched 97.74 yen from 97.67. The dollar was little changed at 76.89 yen.

The ECB will probably keep its key interest rate at 1 percent at a policy meeting today, the median estimate of economists surveyed by Bloomberg News showed. The bank cut its benchmark rate by a quarter of a percentage point at each of its last two meetings.

Shrinking Industrial Production
Industrial production in the euro region is forecast to have shrunk for a third month in November, according to a separate poll before the European Union’s statistics office in Luxembourg releases the data today. The median forecast is for a 0.3 percent contraction.

Corporate ratings downgrades in Europe, the Middle East and Africa will “substantially” exceed upgrades this year as the euro-area crisis hampers economic growth, according to Moody’s Investors Service. “The current trend for corporate rating actions is strongly negative,” analysts wrote in a report published today.

“Europe is going into a recession and the U.S. is definitely not,” said Thomas Harr, head of Asian currency strategy at Standard Chartered Plc in Singapore. “Even without the crisis, we still have euro-dollar going lower.”

The euro will fall to $1.20 by March 31, he predicted.

Spain will auction as much as 5 billion euros ($6.4 billion) of bonds due 2015 and 2016 today, while Italy is scheduled to sell 12 billion euros of bills.

‘Take Back Control’
French President Nicolas Sarkozy said yesterday “markets and rating agencies exasperate” French voters and that the country needs to “take back control” of its destiny by cutting the budget deficit.

The euro has depreciated 1.6 percent this month, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The New Zealand and Australian dollars, the two best performers, gained 3.3 percent and 1.5 percent respectively.

New Zealand’s currency touched a two-month high versus the dollar today on prospects slowing inflation in China may provide policy makers with scope to spur growth, boosting investor appetite for higher-yielding assets.

Consumer prices in China rose 4.1 percent in December from a year earlier, the National Bureau of Statistics said on its website today. The figure was 4.2 percent the previous month.

Making a Difference
“The fact that they’re looking at more stimulatory polices in China now, and people think that’s turned the corner, is making a big difference,” said Tony Allen, global head of foreign-exchange trading in Sydney at Australia & New Zealand Banking Group Ltd. “The commodity indexes are starting to move up as well,” supporting currencies such as the Australian and New Zealand dollars.

The so-called Aussie traded at $1.0297 from $1.0310 yesterday. New Zealand’s dollar fetched 79.59 U.S. cents from 79.70 after touching 79.81 cents, the most since Nov. 9.

The Thomson Reuters/Jefferies CRB (CRY) index of raw materials has gained 2.7 percent this month.

The People’s Bank of China announced in November that it would cut the reserve requirement ratio for the nation’s banks by 50 basis points, the first reduction since 2008. China is Australia’s top trading partner and New Zealand’s second-largest export destination.

‘Cooperative Relationship’
The central bank set its yuan fixing 0.12 percent weaker at 6.3230 per dollar today. U.S. Treasury Secretary Timothy F. Geithner said the U.S. and China had a “strong cooperative relationship” on economic growth, financial stability and nonproliferation after holding talks with Premier Wen Jiabao in Beijing yesterday.

The yuan weakened 0.05 percent to 6.3187 per dollar, according to the China Foreign Exchange Trade System. It’s allowed to trade 0.5 percent on either side of the daily fixing.

Demand for the dollar was limited before a report that may show improving sales in the U.S., adding to signs recovery in the world’s biggest economy is gaining momentum.

Retail sales probably rose 0.3 percent in December, following a 0.2 percent gain in November, economists forecast in a Bloomberg News survey before the Commerce Department issues the figure today.

“The U.S. economy is doing quite well,” said Standard Chartered’s Harr. “Better U.S. numbers will tend to be a negative for the dollar” against higher-yielding and emerging- market currencies, he said.