LONDON, Feb 17: The euro tumbled against the dollar on Tuesday over doubts about the eurozone economy and fears of the exposure of western European banks to huge debts in crisis-hit Central and Eastern Europe.

The euro was changing hands at $1.2569 in London trading late on Tuesday compared to $1.2801 on Monday. The euro also fell against the Japanese yen to 116.23 yen compared to 117.46 yen before.

The yen meanwhile slid against the dollar as Japan’s Finance Minister Shoichi Nakagawa announced he would resign after coming under strong criticism for appearing to be drunk at a Group of Seven nations’ weekend meeting in Rome.

The dollar rose against the yen to 92.36 yen against 91.73 previously.

The dollar gained despite mounting fears among investors that efforts to revive the US economy are insufficient. The US currency is still seen as a relatively safe bet at a time of global financial turmoil.

“Moody’s warnings on Eastern European banks and potential impact on some eurozone countries have proven very damaging for the euro overnight,” said Audrey Childe-Freeman, an analyst at US bank Brown Brothers Harriman.

International ratings agency Moody’s earlier warned that western European banks may suffer downgrades because of problems in Central and Eastern Europe, sending down the euro as well as local currencies.

“At a time when risk adversity has returned, CEE currencies are looking increasingly vulnerable, especially as debt concerns are growing in that region,” she said.

Barclays Capuital analyst David Woo said: “The euro fell sharply against the dollar in response to a Moody’s statement which said that banks with significant exposures to central and eastern Europe may face downgrades.

“Banks from Austria, Italy, France, Belgium, Germany and Sweden account for 84 per cent of western European bank loans in eastern Europe.

“This highlighted the ongoing issue of links between the Eurozone and the Central and Eastern Europe economic slowdown,” he added.—AFP