Cyprus bank, Italy worries send euro lower

The euro sank again Wednesday to below the $1.28 line as worries increased ahead of the reopening of Cyprus banks and as Italy's center-left leader Pier Luigi Bersani struggled to form a coalition.

At 2200 GMT the euro was trading at $1.2779 compared to $1.2861 late Tuesday.

The yen gained more ground as a safe-haven despite more statements from the new Bank of Japan chief in favor of a weaker currency.

The yen edged higher to 94.40 to $1.00 from 94.44, while the euro dropped to 120.63 yen from 121.44.

Eyes were on the planned reopening of Cyprus's banks on Thursday after a near two-week shutdown.

The banks will open their doors anew under draconian capital controls aimed at stifling a run by depositors and keeping the banks alive.

But the idea of the controls, the first of their kind in the eurozone, and the losses large depositors will incur as the government takes over the two largest banks, have sent waves of worry through other weak eurozone economies.

Meanwhile Bersani's inability to establish a governing coalition ahead of a looming deadline raised worries about governance in Italy, straining under recession.

"It is clear that the political instability is not helping," said Marcello Messori, economics professor at the Luiss University in Rome.

Kathy Lien of BK Asset Management said there is likely more downside for the euro.

"Today's sell-off in the euro was triggered by the decline in eurozone confidence."

"There's no question that this breakdown in the euro-dollar rate is significant and paves the way further losses."

However, she said, if Thursday reports on German retail sales and unemployment are positive, the euro could make a turnaround and head back to $1.29.

The British pound was lower, at $1.5130 compared to $1.5160. The dollar rose to 0.9539 Swiss francs from 0.9480.

bur-pmh/ch