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Aug. 14 (Bloomberg) — The euro declined for a second day against the dollar and yen after the European Central Bank provided more cash to banks to ease a credit squeeze prompted by losses on U.S. subprime mortgages.

Europe’s common currency touched a four-month low against the yen after the region’s central bank loaned banks funds for a fourth trading day. UBS AG said profit may be hit this year because of turmoil in financial markets, and a Spanish newspaper reported Banco Santander SA has more than 2 billion euros ($2.7 billion) of investments in U.S. high-risk loans.

“Subprime is not a U.S. problem only,” said Matthew Strauss, a senior currency strategist at RBC Capital Markets Inc. in Toronto, a unit of Canada’s biggest bank by assets. “It is now being felt by European financial institutions. We haven’t seen the bottom of the issue yet. Investors will be less willing to hold euro assets. The euro is under pressure.”

The euro fell to $1.3572 at 8:55 a.m. in New York from $1.3613 yesterday. Against the yen, it traded at 160.78 compared with 160.97, after earlier touching 159.90, the lowest since April 19.

The euro was also hurt after a government report showed the German economy, Europe’s biggest, grew slower than forecast in the second quarter.

The ECB provided cash to banks “to cover any remaining liquidity needs.” It allotted 7.7 billion euros to banks in a one-day refinancing tender at a marginal lending rate of 4.07 percent.

The ECB, the U.S. Federal Reserve and other central banks injected $290 billion into money markets on Aug. 9 and Aug. 10 amid fears that U.S. subprime mortgage losses will curtail lending and push up short-term interest rates. The ECB added another $65 billion yesterday, which banks pay back today.

UBS, Santander

“It will be difficult for the ECB to raise interest rates if this cash injection drags on,” said David Woo, global head of currency strategy at Barclays Capital in London.

Shares of UBS AG, Europe’s biggest bank, fell to a 2007 low on the Zurich exchange after it said revenue from trading debt fell 31 percent and market swings may hurt results this quarter.

Banco Santander SA, Spain’s biggest bank, has 2.2 billion euros of high-risk loans in the U.S. at its Drive Financial unit, according to Spanish newspaper ABC.

Sydney-based RAMS Home Loans Group Ltd. said a shakeout in global debt markets may cut earnings.

“It has become clear that this isn’t a U.S. problem, but a global problem,” said Komal Sri-Kumar, who oversees $145 billion as chief global strategist at TCW Asset Management Co. in Los Angeles.

Citigroup Chart

Charts pointed to further declines in the euro. Citigroup Global Markets Inc. said investors should sell the single currency against the dollar because technical charts indicate the currency may drop to $1.3370.

“A close of the euro below $1.3609 would signal a potential move to at least $1.3370,” the bank said in a note to clients. The $1.3609 level represents the July 30 low, according to Citigroup.

The yen rose against the New Zealand dollar and British pound as concern over credit market losses prompted investors to unwind carry trades, which involve borrowing in low-yielding currencies to fund higher-yielding investments elsewhere. It declined 0.2 percent against the dollar to 118.46, after earlier rising to 117.77.

`Moving Out’

“We are still in the period where people are moving out of risky assets,” said Hans-Guenter Redeker, the London-based global head of currency strategy at BNP Paribas SA. “Carry trades are being unwound. The yen is likely to go up further in this environment.”

The yen has advanced against all of the 16 most-active currencies since July 20, when the U.S. subprime mortgage crisis sparked an exit from carry trades.

The New Zealand dollar fell 1 percent to 86.55 yen after retail sales unexpectedly dropped 0.4 percent in June as rising borrowing costs curbed domestic demand. The Australian dollar declined 0.3 percent to 99.31 yen and the British pound fell 0.5 percent to 236.81 yen after a government report showed inflation in July was lower than forecast and below the Bank of England’s 2 percent target for the first time since March 2006.

Japan’s 0.5 percent interest rate is the lowest among major economies and has encouraged investors to borrow yen and buy higher-yielding currencies. The benchmark rate is 4 percent in the euro region, 5.25 percent in the U.S., 5.75 percent in the U.K., 6.5 percent in Australia and 8.25 percent in New Zealand.

The dollar extended its gains against the euro after a government report showed prices paid to U.S. producers increased more than forecast last month.

Source: Bloomberg Currencies

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