Euro rally fades after Spain bank rescue

Over the weekend, European countries agreed to lend up to $125 billion to Spain to help its crippled financial industry. Traders are concerned that it's only a temporary fix for the European debt crisis.

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Susana Vera/Reuters
A Spanish flag is tangled by the wind as it hangs from a pole in Madrid June 11, 2012. Financial market euphoria over a European bailout for Spain's debt-stricken banks faded quickly on Monday as investors sounded the alarm over its impact on public debt and bondholders, and eyed the next risks in the euro zone's debt crisis.

The euro fell sharply against the dollar late Monday after rallying to a three-week high earlier as relief faded over a rescue of Spain's banks. Worries about Italy's finances and Greece's upcoming elections also pushed traders to sell euros.

Over the weekend, European countries agreed to lend up to $125 billion to Spain to help its crippled financial industry. Traders are concerned that it's only a temporary fix for the European debt crisis.

On Monday, Italy said that its economy contracted in the first quarter, raising fear that it may be the next country to ask for a bailout. The interest rates on Italy's 10-year bond jumped to nearly 6 percent, a sign that investors are concerned about the country's finances.

The euro fell to $1.2498 in late trading Monday from $1.2507 late Friday. Before its drop, the euro rose as high as $1.2647 overnight. That was its highest point against the dollar since May 23.

Traders are also concerned about this weekend's Greek election. If anti-bailout politicians win, the country could be forced to leave the eurozone, a move that could hurt global financial markets.

The dollar was mixed against other currencies. The British pound rose to $1.5498 from $1.5462 and the dollar slipped to 79.44 Japanese yen from 79.48 yen.

But the dollar rose to 0.9609 Swiss franc from 0.9603 Swiss franc and to 1.0305 Canadian dollar from 1.0293 Canadian dollar.

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