By Fabio Alves
NEW YORK (Dow Jones) – Pressure on the euro accelerated Friday morning amid growing concerns about sovereign debt problems in the euro-zone’s weaker nations.

The euro sank to a fresh eight-month low against the dollar, at $1.3638, and dipped to a new intraday low against the yen. The dollar index, which tracks the greenback against a trade-weighted basket of currencies, jumped to its highest level since July 13.

Demand for the common currency has dried up amid worries that ballooning budget deficits in the weaker nations of the euro zone will hurt economic growth and keep the European Central Bank from lifting interest rates, resulting in the bank lagging the U.S. Federal Reserve in terms of tightening monetary policy. Investors shrugged off mixed U.S. employment report showing that the U.S. economy continued to shed jobs, while the unemployment rate unexpectedly dropped in January.

“The sovereign debt problems are still hanging over the euro,” said Kathy Lien, director of currency research at GFT Forex in New York. “It’s a kind of a crisis of confidence right now.”

Friday morning in New York, the euro was at $1.3671 from $1.3741 late Thursday, according to EBS via CQG. The dollar was at Y89.33 from Y88.94, while the euro was at Y122.15 from Y122.20. The U.K. pound was at $1.5635 from $1.5750. The dollar was at CHF1.0745 from CHF1.0655. The Dollar Index was at 80.297 from 79.907.

Demand for safer assets had picked up during Asian and European trading hours on the back of renewed concern over sovereign debt problems in the euro zone. That forced the Swiss National Bank to intervene to stem a spike in the Swiss franc against the euro, according to traders. The euro spiked around 0300 GMT to CHF1.4905, its highest since Dec. 28, from CHF1.4635. The dollar jumped to CHF1.0800, its highest since Aug. 18, from CHF1.0670.

Two dealers in the region said they saw franc-sale orders under the name of the SNB on the EBS trading platform. The central bank was bidding for euros at CHF1.49, far above the spot rate of CHF1.46, they said. The Swiss central bank didn’t confirm the intervention.

Meanwhile, the cost of insuring Greek and Portuguese debt against default remained at record wide levels Friday. According to CMA DataVision, Greece’s five-year sovereign credit-default swap spreads–a key measure of credit risk–stood at 446 basis points in early European trading Friday, up around 19 basis points from Thursday’s record wide close of 427 basis points.

Investors are focused on a key vote in Portugal Friday. Portuguese lawmakers may vote for a regional finance law that could add to the budget deficit at a time when investors are growing increasingly concerned about the state of Portuguese finances.

The proposed Law of Regional Finances was approved Thursday by a parliamentary committee and would increase the funds sent to Portugal’s Madeira and Azores regions by EUR50 million this year, and raise the amount each year until 2013 when the figure would hit EUR86 million, according to Finance Ministry calculations.

The euro is under increasing pressure over sovereign debt issues in Greece and other euro-zone countries and “when you’ve got [anti-euro] momentum of this kind of scale, you need something to reverse it,” said Daragh Maher, deputy head of global foreign exchange strategy at Calyon in London. The payrolls data didn’t stop the momentum, he said.

The U.S. unemployment rate, calculated using a household survey, fell to 9.7% last month from an unrevised 10% in December, the Labor Department said Friday. Economists surveyed by Dow Jones Newswires had forecast the jobless rate would edge higher to 10.1%.

Nonfarm payrolls fell by 20,000 compared with a revised 150,000 decline in December. Economists had expected payrolls to be flat. The December figure was revised down sharply from an originally reported 85,000 drop.

-By Fabio Alves, Dow Jones Newswires; 212-416-2204;

fabio.alves@dowjones.com

(Adam Cohen in Brussells and Bradley Davis in New York contributed to this article.)

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