U.S. dollar surges on safety flight .

The U.S. dollar advanced against its major counterparts on Wednesday, as euro zone debt crisis fears sent investors seeking the relative safety of the greenback.  

During mid session U.S. trade, the greenback traded higher against the euro, with EUR/USD falling 0.77% to 1.2949.  

The single currency was depressed by a triple whammy of Italian bank fears,  a monotonous German debt auction, and European Central Bank overnight deposits striking all time highs.  

The results of the German bond auctions were far from inspiring with an average yield of 1.93 compared with 1.98 in November.  

The U.S. dollar was up against the pound, with GBP/USD  falling 0.17% to hit 1.5622.  

In other news, official data showed that euro zone inflation dropped from 3% to 2.8% in December adding to rate cut euro bearishness.  

Meanwhile, A UK report indicated that construction activity surprisingly increased in December, extending the expansion to 12 months.  

The greenback was lower against the yen but sharply higher against the Swiss franc with USD/JPY off by 0.03 to 76.71 and USD/CHF soaring 1.04% to hit 0.942.  

In addition the greenback was higher against its Canadian,  Australian and New Zealand cousins with USD/CAD falling  0.27% to hit 1.0133, AUD/USD dropping 0.22% to hit 1.0355 and NZD/USD giving back 0.28% to 0.7870.  

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, climbed 0.58% to hit 80.42.  

Investors are anxiously awaiting renewed euro zone crisis talks starting on January, 9th as well as U.S. payroll numbers on January 6th.

Crude oil slumps as EU debt woes weigh, Iran fears support .

Crude oil futures declined on Wednesday, easing off the previous session’s seven-week high as market sentiment weakened amid lingering concerns over the euro zone’s debt crisis, while mounting fears over a disruption to Iranian oil supplies limited losses. 

On the New York Mercantile Exchange, light, sweet crude futures for delivery in February traded at USD102.59 a barrel during European morning trade, shedding 0.35%.
 
It earlier fell by as much as 0.48% to trade at a session low USD102.41 a barrel. Prices rallied to a seven-week high of USD103.16 a barrel on Tuesday.

Investors turned cautious as Germany’s Treasury was set to auction EUR5 billion of 10-year government bonds later in the day.

Adding to nervousness, data released earlier in the day showed that the use of the European Central Bank's overnight deposit facility reached a new all-time high of EUR453.1 billion on Tuesday.

The report underlined concerns over region’s banking sector, as euro zone lenders increasingly turn to the ECB as a safe-haven for extra funds.

Euro zone developments dominated trading in the oil market for the last several months of 2011, amid worries that the sovereign debt crisis could trigger a broader economic slowdown that would curb demand for oil.

Meanwhile, prices continued to draw support from supply disruption concerns as a result of escalating tensions between Iran and the West.

Iran’s military chief Ataollah Salehi warned the U.S. against sending naval ships back to the Persian Gulf, however Pentagon Spokesman George Little said earlier that "regularly scheduled movements" including through the Strait of Hormuz will continue, ignoring threats from Iran.
 
The Strait of Hormuz, located between Iran and Oman, is one of the most important oil-shipping channels in the world, handling about 33% of all ocean-borne traded oil, according to the U.S. Energy Information Administration.

Iran is the world's fourth largest oil producer, pumping nearly 5% of the world's oil in 2010. The threat of a major supply disruption from the country has helped support oil prices in recent weeks.

Elsewhere, on the ICE Futures Exchange, Brent oil futures for February delivery dipped 0.15% to trade at USD111.97 a barrel, with the spread between the Brent and crude contracts standing at USD9.38 a barrel.