The euro fell against the dollar as European Union leaders prepared to double a credit line for member states in financial distress.

The euro slid from near a two-month high against the U.S. currency after European Commission President Jose Barroso said leaders may agree today to boost the amount of cash for struggling countries to 50 billion euros ($68 billion) from 25 billion. The dollar rose as some traders bet the slump this week stoked by the Federal Reserve’s plan to start buying Treasuries was overdone given the outlook for the U.S. economy.

“Investors are concerned that such a bailout would be a liability for the European Union, especially the euro zone,” said Geoffrey Yu, a London-based strategist for UBS AG, the world’s second-largest foreign-exchange trader. “Any rescue would be positive for risk appetite. But if the euro zone is bearing the cost alone, it will be seen as euro negative.”

The euro declined to $1.3569 as of 7:39 a.m. in New York, from $1.3665 yesterday, when it touched $1.3738, the strongest level since Jan. 9. The single currency advanced 4.9 percent versus the dollar this week. The dollar strengthened to 95.51 yen, from 94.51 yesterday. The yen was at 129.55 per euro, from 129.17 yesterday.

Increased funds for beleaguered economies will show “solidarity” with EU members that haven’t yet adopted the euro, Barroso said at the leaders’ two-day summit in Brussels. French President Nicolas Sarkozy backed the increase because of the higher risks of financial stress in central European countries, a French official told reporters. Eight of the 11 eligible countries are in eastern Europe.

Source: Bloomberg