Euro pares losses as EU leaders meet

NEW YORK (MarketWatch) � The dollar rose against the euro and other major currencies Monday, regaining some of the ground lost last week, amid ongoing worries over Greece and the region�s sovereign-debt crisis.

The euro briefly fell under $1.31, but managed to recoup some of its losses as European leaders gathered for the first summit meeting of 2012.

The benchmark DXY , which measures the U.S. unit against a basket of six other currencies, rose to 79.220, from 78.854 late Friday.

Click to Play Leaders aim to ward off future crises

Euro-zone leaders are proposing stiff rules and penalties at their summit in Brussels to prevent countries from becoming economically unstable. (AP photo: Petros Giannakouris.)

The euro EURUSD �fell to $1.3117 from $1.3216 in late North America Friday.

Going into a summit meeting in Brussels, tensions between Greece and Germany were on the rise. Greek officials rejected a proposal by Germany, the largest European economy, to give the European Union veto power over Athens�s spending plans. Read about EU summit.

�The dollar is broadly stronger against most major and emerging-market currencies as risk appetite dwindles on continued uncertainty over the developments surrounding Greece and French President [Nicolas] Sarkozy�s pledge to impose a financial transaction tax starting in August,� said Marc Chandler, global head of currency strategy at Brown Brothers Harriman. Read more on Portugal.

He also noted yields on Italian debt were rising, as were yields for Portugal � which already accepted a bailout but may face the same issues that Greece has yet to resolve, said Dan Greenhaus, chief global strategist at BTIG. �Whatever is worked out for Greece would eventually serve as the blueprint for Portugal.�

Yields on Portugal�s 2-year notes shot up 400 basis points during the session, to top 21%, he said. A basis point is one one-hundredth of a percentage point.

Portugal�s 10-year notes yield about 17%, up about 200 basis points on the day, according to BTIG.

Even if Greece makes a deal with bondholders, �the fiscal and growth objectives of the austerity efforts in Athens and Rome have yet to be mulled by IMF [International Monetary Fund] monitors, not to mention the liquidity difficulties encountered by Portuguese sovereign bonds,� said Ashraf Laidi, chief global strategist at trading platform City Index.

�Our base view remains that euro-dollar will fall back below $1.25 towards the end of the first quarter, before testing $1.21 before summer,� he said. �Only a break above $1.35 would lead us to re-consider this assessment.�

/quotes/zigman/1652083 DXY 82.93, -0.11, -0.13%

The European Council held its first summit of the year Monday, releasing a statement detailing the region�s plans to stimulate employment for young people, complete the single market for Europe and boost financing of the region�s economy. Read more on EC statement.

Weighed by the Fed

The dollar index fell 1.7% last week, retreating after the Federal Reserve said that it could keep interest rates at ultra-low levels until late 2014. The U.S. central bank had previously said that rates would stay low until the middle of 2013. See more on dollar�s decline last week.

�It is becoming increasingly clear that firmer activity data may still not prevent a further round of quantitative easing and attendant U.S. dollar downside risks,� said strategists at Credit Agricole.

The dollar barely fluttered after a report showed U.S. personal spending unexpectedly dipped in December, though incomes rose more than some predicted. Read about U.S. spending.

Investors have turned cautious on the U.S. currency ahead of this week�s raft of economic data.

�This is a big week for U.S. data releases, and in turn, the U.S. dollar. Heavyweight data including January payrolls, ISM manufacturing confidence and consumer confidence readings are on tap over coming days,� the Credit Agricole strategists said. Read economic preview.

Among other major currencies, the British pound GBPUSD �slipped to $1.5701, down from $1.5740 Friday.

Against the Japanese yen USDJPY , the dollar bought �76.31, down from �76.70.