Euro nears 16-month low on debt fears, world stocks fall

The euro weakened to a near 16-month low against the dollar and global stocks fell after Fitch Ratings warned the ECB needs to do more to avert a collapse of the troubled European currency, adding to worries about the euro zone crisis.

Oil prices also declined as investors rushed into the perceived safety of gold and sovereign bonds issued by the United States and Germany.

The euro fell 0.8% to USD 1.2672, closing in on its 16-month low of USD 1.2666 set on Monday, after Fitch's head of sovereign ratings David Riley said the European Central Bank needs to ramp up its buying of euro zone debt to prevent a "cataclysmic" collapse of the currency.

It briefly trimmed some losses after a French Treasury source said the government had not been informed of any imminent decision on its credit ratings. Talk of a downgrade of France's triple-A rating also weighed on investor sentiment.

A pledge by German Chancellor Angela Merkel that Germany would pay more capital into the European Stability Mechanism fund, once it is launched later this year, also avoided a stronger sell-off in the euro, traders said.

"The Fitch news rattled the market, and Merkel's comments offset that temporarily, but overall the main focus remains on this week's ECB meeting and debt auctions," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Global stocks declined 0.6% according to the benchmark MSCI All-Country World Index, and key Wall Street indexes fell after hitting a five-month high on the previous session.

The Dow Jones industrial average lost 53.43 points, or 0.43%, to 12,409.04, while the Standard & Poor's 500 Index declined 5.68 points, or 0.44%, at 1,286.40. The Nasdaq Composite Index slid 9.07 points, or 0.34%, to 2,693.43.

US Treasuries prices rallied as investors sought protection, driving 30-year yields below 3%. German Bund futures hit their highest since November 10 at 139.34.

"The Europe situation is really driving the market. This is clearly a cause of concern in the marketplace," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. in New York.

In commodities markets, US crude oil prices fell 1.2% to USD 101.00 per barrel, while gold prices hit a one-month high of USD 1,646.90 an ounce. Gold last traded 0.26% higher, at USD 1,635.10 an ounce.