The euro fell against most of its major counterparts as leaders from Germany and France said they are against increased funding to quell the sovereign-debt crisis before next week’s summit of European Union leaders.

German Chancellor Angela Merkel and French President Nicolas Sarkozy, in talks today, said they oppose increasing the European Union’s 440 billion-euro ($581 billion) rescue fund and rejected joint euro-area bonds. The single currency posted its biggest declines against the Norwegian krone and New Zealand dollar. The Australian dollar headed for a weekly drop against the greenback on speculation China will tighten monetary policy.

“The euro zone has a lot to do structurally to be able to right the ship,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York. “It will continue to keep the euro somewhat on the defensive.”

The euro was set for a 1.3 percent decline against the dollar this week. It was little changed at $1.3244 at 8:21 a.m. in New York. Yesterday it touched $1.3165, the lowest since Dec. 2. The common currency was 0.7 percent weaker versus the krone at 7.9384 and was little changed at 110.89 yen.

‘Structural Weaknesses’

Merkel said that there are “structural weaknesses” in the euro region that must be addressed. Merkel held talks today with Sarkozy in Freiburg, Germany, before a Dec. 16-17 European Union summit.

The leaders of the euro-area’s two largest economies said the continued existence of the common currency is “non- negotiable.”

“If the euro fails, Europe fails,” Merkel said.

European Central Bank Vice President Vitor Constancio late yesterday signaled European governments should be ready to increase the size and flexibility of their bailout fund as the ECB urges leaders to do more to fight the fiscal crisis.

Merkel said she is against increasing the size of the fund and sharing public debt with the eurozone, saying that European leaders would do what is necessary to defend the euro.

Europe’s sovereign debt crisis took hold at the end of 2009 after a new government in Greece said the budget deficit was twice as big as the previous administration disclosed. The region’s nations assembled a rescue fund in May, which Greece and Ireland have tapped.

Spanish and Italian government bonds fell, increasing the additional yield investors demand to hold the securities instead of benchmark German bunds, amid concern government borrowing costs will rise at debt sales next week.

Key Support

The euro may decline as low as 108 yen should it break below a key support level against the Japanese currency, Societe Generale said, citing technical indicators in a research note today. A support level is an area on a chart where technical analysts anticipate orders to buy a currency and its related instruments. The stronger the support, the more selling is needed for a drop below that level.

The dollar has fallen 1.3 percent this year in a measure of the currencies of 10 developed nations, according to Bloomberg Correlation-Weighted Currency Indexes. The euro has dropped 9.5 percent so far this year and 2.1 percent in the past month. The yen is up 11 percent on the year and 0.4 percent in the past 30 days.

The Australian dollar is set for a weekly drop on concern Chinese inflation data tomorrow will back the case for the Asian nation to tighten monetary policy. Australia’s currency was at 98.82 U.S. cents, from 98.37 cents, set for a 0.4 percent decline this week.

The People’s Bank of China increased reserve requirements by 50 basis points starting Dec. 20, the central bank said on its website today. It’s the third increase in five weeks.

China Inflation

China’s consumer prices rose 4.7 percent in November from a year earlier, a statistics bureau report will show tomorrow, according to the median forecast in a Bloomberg News survey of economists. That would be the fastest pace since August 2008. The Economic Information Daily said today the figure may be 5.1 percent.

“The danger is China raises interest rates steeply, causing a hard landing for the Chinese economy, which would obviously hurt Australia’s exports,” said Derek Mumford, a Sydney-based director at Richford Capital, a foreign-exchange and rates risk management firm. “That’s holding the Aussie dollar back.”

The “window” for China’s central bank to raise borrowing costs could be this weekend, according a report in the China Securities Journal this week.