Dollar drops as Greek fears escalate

THE dollar is trading more than one US cent lower this morning, as traders worry that Greece's debt crisis could spill over to other economies.

THE dollar is trading more than one US cent lower this morning, as traders worry that Greece's debt crisis could spill over to other economies.

At 7am AEST, the dollar was trading at 105.78 US cents, down from 106.88 cents yesterday.

Since 5pm AEST yesterday, the currency has traded between 105.36 US cents and 107.07 US cents.

The local currency reached 110.11 US cents on May 3, a record high since the currency was floated in December 1983.

Global equity and commodity markets as Greek Prime Minister George Papandreou said he would seek a confidence vote as thousands besieged parliament against new austerity cuts and debt-hit Athens teetered on the brink of default.

The dollar weakened, as risk appetite took a hit on the news, said Imre Speizer, Westpac New Zealand senior market strategist.

He said investors were worried that Greece's debt crisis remained highly unstable and of its potential to spread to other economies.

"As these things spill over to wider Europe, like Spain and others, you've then got to start looking at who has exposure to (economies) like Spain - it then becomes a much wider issues," he said.

"All of the events last night edged a little bit closer to a possibility of a contagious flare-up."

In Spain, about 2000 demonstrators clashed with police outside a regional parliament, angry about planned budget cuts in education and health.

Overnight, credit ratings agency Moody's said it may downgrade its ratings of France's three largest banks over their exposure to debt-ridden Greece.

The bad news from Europe drove the euro to its biggest one-day drop since early May. The US dollar gained broadly as investors sought safety. The dollar is often considered a safe-haven currency.

Locally today, the Australian Bureau of Statistics releases new motor vehicle sales for May and the central bank is due to publish its quarterly bulletin.

Mr Speizer said the data would interest currency traders but that the dollar would probably not react a great deal.

He expected the dollar to rebound from its overnight slump today, possibly trading as high 106.20 US cents.