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FOREX-Euro regains footing but debt concerns weigh

Published 05/21/2011, 01:06 PM
Updated 05/18/2011, 02:56 AM

* Euro buoyant as oil climbs, while dollar drifts

* Euro out of steam vs yen, but eyes on M&A deal by Japan firms

* Aussie weighed as Moody's downgrades four banks

By Chikafumi Hodo

TOKYO, May 18 (Reuters) - The euro was buoyant against the dollar on Wednesday after recovering from a seven-week low earlier in the week, but wariness over Europe's sovereign debt problems kept investors nervous about piling up euro positions.

The euro drew support from a recovery in oil prices and precious metals, while a downward trend in U.S. Treasury yields weighed on the dollar.

"The euro is still in a correction phase after recent declines. It has the potential to advance towards $1.43-$1.44 on hopes for more buybacks by foreign investors," said Hideki Amikura, a forex manager at Nomura Trust and Banking.

"But the euro could lose ground again once rounds of corrective buying are over," Amikura said.

The euro rose 0.3 percent to $1.4275 , breaking through the previous day's high after slumping to a seven-week low of $1.4048 on Monday.

The European currency could test its 50-day moving average, currently at $1.4325, in the near term, said Teppei Ino, a currency analyst at Bank of Tokyo-Mitsubishi UFJ.

"Although the euro is still vulnerable to downward pressure due to lingering debt problems in the euro zone, we are watching whether it could break through its 50-day moving average above $1.43 in the near term," Ino said.

"I feel that the euro-zone debt issue has stabilised slightly for the near term after European finance ministers approved a loan scheme for Portugal, prompting buying back of the euro," he said.

Still, investors avoided becoming overly optimistic and building up euro positions as the region's debt crisis is far from over, analysts said.

Europe's top financial officials broke a taboo on Tuesday and acknowledged for the first time that Greece may have to restructure its debt, which could stoke the region's sovereign debt crisis. [ID:nLDE74G0PD]

YEN FIRMS

The euro drifted lower against the yen after gaining support in early trade on expectations of yen-selling flows linked to M&A deals by Japanese corporations, traders said.

Japan's Toshiba Corp <6502.T> is close to closing a deal to buy Swiss-based meter maker Landis+Gyr for about $2.5 billion, an industry source said on Tuesday. [ID:nL4E7GH09K]

Separately, Takeda Pharmaceutical <4202.T> will reach an agreement on Wednesday with Swiss-based Nycomed to acquire the company for about 1 trillion yen ($12 billion), the Nikkei financial daily reported. [ID:nWNAB9664]

The euro fell 0.1 percent to 115.83 after climbing to a high around 116.40 yen in early Asian trade.

"The near-term technical trend for the euro improved, especially after breaking beyond 115.60 yen yesterday, but its topside was capped somewhat as the dollar is weighed down above 81 yen," a forex dealer at a Japanese securities house said.

The dollar fell 0.3 percent to 81.20 yen , with stop-loss sell orders triggered after it drifted down from Tuesday's high of 81.77 yen.

The dollar was weighed down as the market detected a series of sell orders by Japanese retail investors lined up between 81.50 and 81.70 yen, traders said.

Further stop-loss dollar sell orders are rumoured to be placed at 81.00 yen and 80.80 yen, they said.

"The dollar may face some hurdles near 82 yen, with U.S. Treasury yields drifting down recently," Ino said.

U.S. housing starts and building permits fell in April, while factory output slumped, suggesting the economy got off to a weak start in the second quarter, U.S. data showed on Tuesday.

The New Zealand dollar advanced to $0.7890 after news that producer input prices rose 2.2 percent in the three months to March 31 from the previous quarter, the sixth straight increase and the largest quarterly movement since September 2008. [ID:nW9E7EU02E]

The Australian dollar advanced to $1.0655 after slipping to the day's low of $1.0615 on data showing that the Australian wage price index rose 0.8 percent in the first quarter versus the previous quarter, below economists' forecast of 1.1 percent.

The Aussie was also undermined after Moody's Investors Service downgraded credit ratings of the country's four major banks to Aa2. ($1 = 81.425 Japanese Yen) (Additional reporting by Hideyuki Sano; Editing by Edmund Klamann)

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