FOREX-Dollar dips vs euro but losses limited before ECB

                                
* Euro recovers from 1-mth low vs dollar on short-covering
                                
 * Euro gains limited ahead of ECB rate decision
                                
 * Eyes on U.S. December retail sales figures later in the day
                                
 By Kaori Kaneko
                                
 TOKYO, Jan 14 (Reuters) - The dollar edged down from a
one-month high against the euro on Wednesday but remained
underpinned as investors braced for a possible interest rate cut
by the European Central Bank later in the week.
                                
 The ECB is expected to cut rates by 50 basis points from the
current 2.5 percent at a policy meeting on Thursday to help fight
a broad economic downturn. [ECB/INT]
                                
 The European single currency's gains against the dollar were
also limited due to the recent threat of ratings downgrades for
some euro zone countries.
                                
 Spain on Monday became the third euro zone country since last
week to be warned by ratings agency Standard & Poor's that its
credit rating is under threat from the global credit crisis.
[ID:nLC477283]
                                
 "The surrounding environment for the euro is weak and there
are no reasons to favour the currency," said Nobuaki Kubo, vice
president at BBH Investment Services.
                                
 If the ECB does not take drastic easing steps, the euro could
be hurt further on a view that the central bank is being too slow
in helping the faltering economy, Kubo said.
                                
 The euro rose to $1.3279 <EUR=>, up 0.8 percent from late New
York trade, after hitting a one-month low of $1.3140 on trading
platform EBS the previous day.
                                
 Against the yen, the single currency gained 1 percent to
119.20 yen <EURJPY=R>. It had fallen as low as 117.13 yen on EBS
on Tuesday, the lowest since early December.
                                
 Rebounds in Asian shares on Wednesday helped the euro pare
some of the previous day's steep losses but investors remained
hesitant to go beyond short-covering.
                                
 Tokyo's Nikkei share average <.N225> rose 0.3 percent after a
sharp sell-off the previous day. [.T]
                                
 A recent slump in global stocks has revived risk aversion and
prompted investors to move away from higher-yielding currencies
and seek perceived safety in units like the yen.
                                
 "A trend of risk aversion in the market has not changed on a
bleak global economic outlook and the yen is basically in
demand," said Satoshi Okagawa, head of the FX forward trading
group at Sumitomo Mitsui Banking Corporation.
                                
 "But since volatility is high in the market, prices changes
could look enormous," Okagawa said.
                                
 The dollar was up 0.5 percent against the yen at 89.77 yen
<JPY=>.
                                
 Demand for the dollar firmed after a U.S. government report
on Tuesday showed that the trade gap marked the biggest
contraction in 12 years in November, driven by a plunge in
imports. [ID:nN12143661]
                                
 Analysts said the U.S. currency was also supported after a
speech on Tuesday by Federal Reserve Chairman Ben Bernanke
suggesting how a frayed financial system could be helped.
[ID:nN13383972] This provided a degree of reassurance that the
central bank would act in a responsible manner, they said.
                                
 Investors were awaiting whether the dollar could keep a firm
footing in the face of fresh U.S. data due later in the day.
                                
 U.S. December retail sales figures will be released at 1330
GMT, which will reflect results of the Christmas shopping season,
and traders said this could be a reason the greenback's advance
stalled against the euro during Asian trading.
                                
 Sales at U.S. retailers are expected to post a 1.2 percent
fall for December to mark a sixth straight monthly drop after a
1.8 percent decline in the previous month, according to a Reuters
poll.
                                
 "Following weak sales figures at top U.S. retailer Wal-Mart,
the year-end shopping sales are expected to be bleak. This view
prevented the dollar from rising further against the yen," a
trader at a Japanese bank said.
                                
 Traders said the market has priced in weak sales data in the
U.S. to some extent given a severe jobs environment but
weaker-than-expected results could still prompt investors to sell
the dollar.
                                
 The Australian and New Zealand dollars crawled back from
one-month lows hit on Tuesday when a sharp drop in risk appetite
took a heavy toll on the commodity-sensitive currencies.
                                
 The Aussie <AUD=D4> climbed 1.9 percent on Wednesday to
$0.6772 after declining to a one-month low of $0.6577 the
previous day.
                                
 The kiwi <NZD=D4> gained 0.8 percent to $0.5577. The currency
dropped to a one-month low of $0.5460 on Tuesday after a warning
by Standard & Poor's that it could downgrade New Zealand's
foreign currency rating. [ID:nWEL411681]
 (Additional reporting by Shinichi Saoshiro; Editing by Chris
Gallagher)