* Euro reverses gains after hitting $1.3029
* Bank stress tests, auction jitters weigh on euro
* Yen down on intervention risk
(Updates prices, adds comment, details, changes byline)
By Steven C. Johnson
NEW YORK, July 20 (Reuters) - The euro retreated from a
10-week high against the dollar on Tuesday as weak U.S.
earnings dulled risk appetite and investors took profits on
euro gains ahead of European bank stress test results.
Traders pushed the euro to $1.3029 <EUR=EBS> overnight but
were reluctant to take it higher for fear stress test results
due Friday would show some banks need to raise more capital.
The euro traded at $1.2903, it's 100-day moving average and
0.3 percent below its level late on Monday. Disappointing
quarterly results from Goldman Sachs Group Inc <GS.N> and some
other companies hurt U.S. stocks earlier and took the euro as
low as $1.2840 but it pared losses by mid afternoon
"We've had three recent attempts above $1.30, and the
euro's come back each time," said Camilla Sutton, senior FX
strategist at Scotia Capital in Toronto. "Markets are looking
for a catalyst to take it back up or push it down, and as long
as the stress tests come out as expected with no big surprises,
we could make a temporary new high above $1.30."
Some analysts say test results could soothe concerns about
how European banks would cope with a deterioration in the
region's economy and financial markets. Some in the market say
banks may not pass the test.
Though nationalized German lender Hypo Real Estate is
expected to fail, a source said on Monday, analysts said
results may still be positive for the euro because signs of
weakness would demonstrate the test's validity.
"If all of the banks passed, the market would say the tests
were unrealistic," said Lutz Karpowitz, currency strategist at
Commerzbank in Frankfurt. []
DOLLAR'S DWINDLING YIELD ADVANTAGE
The dollar rose 0.6 percent to 87.26 yen <JPY=EBS> after
hitting a seven-month low of 86.27 hit on EBS on Friday.
Recent yen strength has prompted market investors to
consider how Japanese authorities may deal with a firmer
currency. Traders suspect they may not want to see the 85-yen
level breached, though many doubt Tokyo is ready to intervene.
Traders said dollar weakness, including against the yen, is
partly a function of fading expectations for a U.S. interest
rate hike in 2010.
The euro has rallied more than 5 percent so far this month
on easing concern about the euro zone debt crisis and after
weak U.S. economic news eroded the dollar's yield appeal.
The yield on the two-year Treasury note touched a record
low on Tuesday after the government reported U.S. housing
starts hit their lowest level in eight months in June. The data
was further evidence the economy has lost steam.[]
The Canadian dollar rose about 0.7 percent to C$1.0472
<CAD=> per U.S. dollar on Tuesday after the Bank of Canada
raised interest rates for the second time in two months.
However, the bank cautioned that the domestic and global
recoveries will be slower than previously expected, and traders
said that makes future hikes less certain and could take some
shine off the Canadian dollar []
Euro declines picked up speed after Hungary sold a smaller
amount of three-month Treasury bills than originally planned.
[]
This contrasted with smoother debt auctions elsewhere.
Ireland sold 1.5 billion euros in bonds on Tuesday, weathering
a ratings cut by Moody's, while Spain and Greece found buyers
for shorter-term paper in further signs of recovering demand
for peripheral euro zone debt. See []
(Additional reporting by Wanfeng Zhou in New York and Naomi
Tajitsu in London; Editing by Andrew Hay)
