Filomena Scalise

New York - The euro bounced back against the dollar on Monday, finding some support after recent heavy losses even as Europe's leaders continued to argue over how to shore up Spain's banks to avoid a new bailout.

At 21h00 GMT, the euro traded at $1.2494, up from $1.2423 last Friday.

The push back to the euro from the safe-haven dollar also pulled US Treasury yields off their all-time lows, the 10-year Treasury bond rising to 1.53 percent from 1.47 percent.

Even so, said David Rodriguez of DailyFx, “strong forex market volatility expectations suggest that the safe-haven US dollar may rally to fresh highs in the week ahead”.

“The highest forex market volatility expectations since January favours a further flight to safety and US dollar strength through the foreseeable future.”

Europe remained divided over whether to use the huge European Stability Mechanism, the regional financial firewall, to bail out Spain's banks without putting more financial burden on the government itself.

Washington stepped up the pressure to do something.

President Barack Obama “believes that the Europeans have the capacity to take action to resolve this and that they have already taken actions that are significant”, White House spokesperson Jay Carney said.

However, he added, “serious risks remain and there's no question that the markets remain sceptical”.

“So we obviously believe that more steps need to be taken.”

The Treasury Department echoed that.

“European leaders appear to be moving with a heightened sense of urgency. We're hoping to see accelerated European action over the next several weeks,” a Treasury official said.

The Japanese yen slipped a bit against the dollar and euro. The dollar was buying 78.36 yen, compared to 78.08 yen on Friday. The euro was at 97.89 yen, up from 97.01 yen.

The British pound rebounded with the euro, rising to $1.5383 from $1.5349. The dollar was at 0.9611 Swiss francs. - Sapa-AFP