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* Euro rises past stop-loss orders above $1.2620
* Gains seen fleeting as banks, peripheral debt concerns weigh
* Euro bearish positions at records, euro/Swiss franc up
By Anirban Nag
LONDON, May 28 (Reuters) - The euro recovered from two-year lows on Monday as Greek opinion polls showed parties which favour sticking with the country's international bailout deal gaining support, leading investors to cut some of the record bearish bets against the common currency.
Most investors were pessimistic over how long the rebound would last, with many worrying about the lack of growth in Europe and the fragile health of Spanish banks. These concerns have dragged the euro 4.7 percent lower in May and left it on track for its worst monthly performance since September.
The euro drew support from opinion polls which suggested a victory for the conservative New Democracy party in the June 17 election. That would make it more likely that the next Greek government will stick to the terms of the bailout agreed with the European Union and the International Monetary Fund, enabling it to stay in the currency club.
These expectations saw the euro rise 0.7 percent to $1.2595 , pulling away from Friday's $1.2495, its lowest level since July 2010. It hit a session high of $1.2625 as stop-loss orders above 1.2620 were triggered, although robust offers layered at $1.2630/50 would check gains, traders said.
Volumes though were on the lower side due to a holiday in some parts of Europe, with the U.S. also shut.
"Investors have got a bit exhausted selling the euro in the absence of more negative news," said John Hardy, currency strategist at Saxo Bank. "So we are seeing some consolidation after the euro's sharp drop from $1.33 to around $1.25."
Indeed, speculators bolstered their euro bearish bets to record highs in the week ended May 22, while dollar longs rose to the highest since at least mid-2008, leaving ample scope for a correction as they cut positions and book profits.
"Heading into the Greek elections we'll fluctuate a lot. Because the market is very, very short euro, reactions to any positive news may be bigger than those to negative news," said Mitul Kotecha of Credit Agricole Corporate and Investment Bank.
"That said, even if we get some good news from Greece, the weight of bad news elsewhere is likely to keep any bounce in the euro short-lived," he said.
Sentiment towards the euro took a knock towards end of last week as the state takeover of Spain's fourth-largest lender, Bankia, intensified worries that the rising cost of supporting banks may push the euro zone's fourth-largest economy to seek an international bailout.
The bank last week asked for rescue funding of 19 billion euros and its shares opened down 26.75 percent on Monday. On top of that, Spain revealed that its highly indebted regions faced 36 billion euros of debt refinancing bills this year, way above the previously stated 8 billion euros.
All of which drove the yield spread between 10-year Spanish and German 10-government bonds to a euro-era high.
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Betting against the euro: link.reuters.com/fuv76s
Global manufacturing PMIs: link.reuters.com/byv24s
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TEMPORARY GAINS
The euro also rose against the Swiss franc to 1.2030 after the Swiss National Bank head Thomas Jordan said that Switzerland is drawing up plans for emergency measures including capital controls in case the euro collapses.
He added he will continue to defend a cap on the franc in the meantime. The euro had jumped to its highest since mid-March on Thursday on rumours that Swiss authorities were planning to impose taxes on bank deposits.
With the euro gaining some ground, the dollar index, which tracks its performance against a basket of major currencies, came off its highest level since September 2010, hit on Friday, to last stand at 81.958, down 0.5 percent on the day.
The dollar also lost 0.3 percent against the yen, last fetching 79.40, with traders citing dollar-selling by Japanese exporters who had missed a chance to sell it above 80.00 yen and are now doing so at lower levels.
The yen was further supported as the Bank of Japan minutes suggested a pause in easing, by complaining of "misunderstanding" in markets that they will keep loosening automatically until 1 percent inflation was in sight.
The Australian and New Zealand dollars jumped more than 1 percent against the dollar. The Aussie was bolstered by buying from real money investors and corporates and that helped it pull away from a six-month low of $0.9690 hit last week.
(Additional reporting by Antoni Sladkowski; Editing by Catherine Evans)
Virgin Money launches new fixed rate ISAs and fixed rate bonds - easier.com
Virgin Money has launched new issues of its popular Fixed Rate Bond and Fixed Rate Cash ISA range. The accounts offer customers a competitive rate, combined with certainty of returns for either one or three years. Accounts are available through Northern Rock branches, online, by post and over the telephone, and interest rates are the same through all distribution channels. ISA customers receive the same rates as those with a non-ISA account.
Virgin Fixed Rate Cash ISA
The Virgin Fixed Rate Cash ISA offers customers a rate of 3.30% for one year (issues 9 &13) and 3.60% for three years (issues 10 & 14) respectively. This matches the rate available for a non-ISA savings account and savers also benefit from the tax-efficiency of the ISA wrapper. These accounts allow transfers in from existing ISAs. Customers can withdraw subject to a charge equivalent to 60 and 120 days’ loss of interest respectively.
Virgin Fixed Rate Bond
The one year Virgin Fixed Rate Bond offers customers a fixed rate of 3.30%, while the three year Bond pays 3.60% per annum. Accounts can be opened with a minimum deposit of just £1, and additional deposits can be made into the bonds during the offer period, up to a maximum of £2 million per customer. Interest can be paid annually, or for those who prefer a monthly option, on the last day of the month (available first business day of the following month). Customers choosing to receive their interest monthly receive the same AER as those receiving annual interest.
The Bonds are non-redeemable and do not allow any withdrawals or closure during their respective fixed rate periods. They are strictly limited issues and may be withdrawn without notice once fully subscribed. Once withdrawn, no further deposits can be made into existing accounts. Upon maturity the account will become a no notice matured bond account and investors will be notified in writing upon maturity of the interest rate payable.
More information on Northern Rock’s savings range is available at northernrock.co.uk/savings.
Forex: EUR/USD plunges on American morning - FXStreet.com
Forex: AUD/USD up on increasing risk appetite - FXStreet.com
Spain Runs Out Of Money - Daily Telegraph Blogs
A Spanish protester burns a euro note
El Mundo reports that the country can no longer resist the bond markets as 10-year yields flirt with 6.5pc again, and the spread over Bunds – or `prima de riesgo' — hits a fresh record each day.
Premier Mariano Rajoy and his inner circle have allegedly accepted that Spain will have to call on Europe's EFSF bail-out fund to rescue the banking system, even though this means subjecting his country to foreign suzerainty.
Mr Rajoy denies the story, not surprisingly since it would be a devastating climb-down, and not all options are yet exhausted.
"There will not be any (outside) rescue for the Spanish banking system," he said.
Fine, so where is the €23.5bn for the Bankia rescue going to come from? The state's Fund for Orderly Bank Restructuring (FROB) is down to €5.3bn, and there are many other candidates for that soup kitchen.
Spain must somehow rustle up €20bn or more on the debt markets. This will push the budget deficit back into the danger zone, though Madrid will no doubt try to keep it off books – or seek backdoor funds from the ECB to cap borrowing costs. Nobody will be fooled.
Meanwhile, Bankia's shares crashed 30pc this morning. JP Morgan and Nomura expect a near total wipeout. Investors who bought the new shares at flotation last year may lose almost everything.
This all has a very Irish feel to me, without Irish speed and transparency. Spanish taxpayers are swallowing the losses of the banking elites, sparing creditors their haircuts.
Barclays Capital says Spain's housing crash is only half way through. Home prices will have to fall at least 20pc more to clear the 1m overhang of excess properties. If so, the banking costs for the Spanish state are going to be huge.
The Centre for European Policy Studies in Brussels puts likely write-offs at €270bn. We could see Spain's public debt surge into triple digits in short order.
As I wrote in my column this morning, the Spanish economy is spiralling into debt-deflation. Monetary and fiscal policy are both excruciatingly tight for a country in this condition. The plan to slash the budget deficit from 8.9pc to 5.3pc this year in the middle of an accelerating contraction borders on lunacy.
You cannot do this to a society where unemployment is already running at 24.4pc. Either Europe puts a stop to this very quickly by mobilising the ECB to take all risk of a Spanish (or Italian) sovereign default off the table – and this requires fiscal union to back it up – or it must expect Spanish patriots to take matters into their own hands and start to restore national self-control outside EMU.
Just to be clear to new readers, I am not "calling for" a German bail-out of Spain or any such thing. My view has always been that EMU is a dysfunctional and destructive misadventure – for reasons that have been well-rehearsed for 20 years on these pages.
My point is that if THEY want to save THEIR project and avoid a very nasty denouement, such drastic action is what THEY must do.
If Germany cannot accept the implications of this – and I entirely sympathise with German citizens who balk at these demands, since such an outcome alienates the tax and spending powers of the Bundestag to an EU body and means the evisceration of their democracy – then Germany must leave EMU. It is the least traumatic way to break up the currency bloc (though still traumatic, of course).
My criticism of Germany is the refusal to face up to either of these choices, clinging instead to a ruinous status quo.
The result of Europe's policy paralysis is more likely to be a disorderly break-up as Spain – and others – act desperately in their own national interest. Se salve quien pueda.
I fail to see how Spain gains anything durable from an EFSF loan package. The underlying crisis will grind on. Yes, the current account deficit has dropped from 10pc to 3.5pc of GDP, but chiefly by crushing internal demand and pushing the jobless toll to 5.6 million. The "unemployment adjusted current account equilibrium" — to coin a concept – is frankly frightening.
The FT's Wolfgang Munchau suggested otherwise last week, saying Spain's competitiveness gap has been exaggerated. I can see what he means since Spain's exports are growing even faster than German exports. But this is from a low base. It is not enough to plug the gap.
Spain is quite simply in the wrong currency. That is the root of the crisis. Loan packages merely drag out the agony.
A Spanish economist sent me an email over the weekend after the Bankia details came out saying:
"It looks like game over for the sovereign and the financial sector at the same time. Unless we get a Deus ex Machina, we'll be discussing much more seriously the benefits of a return to the peseta in no time."
It begins.
Banks told to display 'your money is protected' notices - Daily Telegraph
The notices will also have to state whether banking licences are shared with another brand, as in this case customers who have money in both are still subject to an overall compensation limit of £85,000.
For example, Halifax and Bank of Scotland – which also own BM Savings – count as one group, whereas NatWest and Royal Bank of Scotland are treated as separate entities by the FSCS.
Andrew Bailey, the FSA's director of UK banks and building societies, said: "Customers need to feel confident about their money and to do this they need to know what the compensation limits are and which scheme would provide cover in the event of a bank, building society or credit union failure.
"Too many people assume that because their branch is located on a local high street in the UK, they are covered by the FSCS. This is not true for UK branches of EEA [European Economic Area ] banks where the home country's deposit guarantee scheme applies."
He added: "Banks, building societies and credit unions will have to display these compensation stickers or posters in the branch window along with a sticker at the cashier's window or desk and a further poster in a prominent position inside."
Similar stickers must also be displayed on websites. The rules will take effect on August 31.
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