* Dollar index hovers near seven-week high
* Market eyes developments in Irish debt crisis
* US consumer prices softer-than-expected
(Updates prices, adds comment, changes byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, Nov 17 (Reuters) - The euro edged higher against
the dollar on Wednesday as tepid U.S. inflation data supported
the Federal Reserve's quantitative easing program, which is a
signal for investors to sell the greenback again.
Talk that Ireland may soon receive help to fix its banking
and sovereign debt problems also lifted the euro, although the
currency's upside could be limited because of concerns problems
could spread to other euro zone economies.
The euro earlier slid to a low of $1.3460 on trading
platform EBS, not far from a seven-week trough hit on Tuesday
at $1.3446. Key support lies at $1.3436, the 50 percent
retracement of the August to November rally, and a break could
open the way for a drop toward the low $1.30s, traders said.
"With today's CPI data kind of confirming that the Fed is
doing the right thing on QE, the Federal Reserve is unlikely to
back off," said Greg Anderson, senior currency strategist at
CitiFX in New York.
U.S. consumer prices rose less than expected in October and
the increase in the year-on-year core rate was the smallest on
record. For details, see []
"As a result, we've seen yields stabilizing and it looks
like they're headed lower, which is good for risk sentiment."
In early afternoon trading, the euro <EUR=> was up 0.3
percent at $1.3528. The single currency has lost about 3
percent this month as investors have cut long positions on
peripheral debt worries.
The market's focus was mainly on Ireland, whose high
borrowing costs and large deficit have kindled fears of a
Greek-style crisis where budget problems in one country weigh
on the entire euro zone.
Nervousness grew after European clearing house LCH.
Clearnet doubled its margin requirement on Irish government
bonds to 30 percent of net positions, citing higher Irish
yields over German benchmarks.
HOPES FOR IRELAND RESOLUTION
However, speculation that a resolution of Ireland's
problems is close helped the euro. Irish Prime Minister Brian
Cowen on Wednesday said the country is currently not in a
"threatening situation" and there are "sensible, precautionary
discussions taking place" at the moment. [].
"If we get a resolution to Ireland's problems, you could
see the euro bounce," said Omer Esiner, chief market analyst at
Commonwealth Foreign Exchange in Washington.
"But the overall bias is to the downside, given uncertainty
about not just Ireland but Portugal and Spain. Near term, it
has sold off a lot, but my best bet is it ends the year in the
low $1.30s."
Ireland agreed on Wednesday to work with a European
Union-IMF mission on urgent steps to shore up its shattered
banking sector, a process that could lead to a bailout despite
Dublin's deep reluctance. Irish Finance Minister Brian Lenihan
said talks would start on Thursday. See []
Analysts said given the euro's sharp decline in recent
days, it could bounce back toward $1.37, though the downside
risk remains high.
Citi's Greg Anderson said he believes the euro may have
already formed a bottom given Tuesday's huge liquidation of
long positions. He said the euro could climb to $1.3850 in a
few weeks, although he is not expecting new highs.
Markets also await the release of the Irish government
budget due a week from Friday for a clearer picture of
Ireland's sovereign debt.
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Description of EU safety net: []
How Ireland might tap funds: []
Euro zone debt struggles: http://r.reuters.com/hyb65p
Multimedia coverage: http://r.reuters.com/hus75h
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The dollar stayed close to a six-week high of 83.60 yen
<JPY=> struck on Tuesday, with option-related offers around
83.50 capping gains. It was last at 83.26, flat on the day.
Against a basket of major currencies, the dollar <.DXY> was
down 0.2 percent at 79.052, retreating from Tuesday's
seven-week peak at 79.461.
(Additional reporting by Wanfeng Zhou; Editing by Kenneth
Barry)
