The euro rose against the majority of its most-traded counterparts as Italian bond yields reversed course and fell, easing concern the region’s third-largest economy will be unable to handle its debt crisis.The 17-nation currency gained from the lowest in five weeks versus the dollar and the yen as two people with knowledge of the trades said the European Central Bank bought more Italian government bonds, following purchases earlier today. The euro fell earlier as Spanish and French borrowing costs rose at auctions.

Italy’s credit rating may be cut to low investment grade should the country lose market access, while the nation’s economy may already be in a recession, Fitch Ratings said. Italy’s new government has a “window of opportunity” to carry out urgent measures together with ECB support to bring down borrowing costs, the ratings company said in a special report.

The euro erased gains versus the yen and euro as stocks and commodities tumbled.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, dropped for the first time in four days as builders broke ground on more American homes than forecast in October, an annualized 628,000 . Fewer first-time claims for unemployment insurance payments were filed in the U.S. last week, 388,000, an indication the job market may be gaining traction, Labor Department data showed.

The pound strengthened against the dollar, snapping a three-day decline, after British retail sales unexpectedly rose in October. Sterling gained as much as 0.5 percent to $1.5813 before trading at $1.5751, up 0.1 percent. The currency rose 0.2 percent versus the euro to 85.460 pence.

The Australian dollar reached parity with the greenback for the first time in more than a month as appetite for risk faded.