* Euro hits 6-wk high at $1.3158 <EUR=>, dollar index falls
* ECB's Stark comments cool rate cut expectations
* SNB cuts rates by 50 bps, as expected
* U.S. auto deal makes progress, rocky road seen in Senate
(Adds quotes, updates prices)
By Tamawa Desai
LONDON, Dec 11 (Reuters) - The euro hit a six-week high
against a broadly weaker dollar on Thursday with doubts creeping
in as to whether pent-up demand for the U.S. currency over the
year-end will be as strong as previously thought.
Implied interest rate spreads also moved in the euro's
favour after European Central Bank Executive Board member
Juergen Stark said late on Wednesday the bank did not have a lot
of room for manoeuvre on rates after its cut last week.
Having climbed on a wave of risk aversion in recent months
in tandem with the low-yielding Japanese yen, some analysts said
further dollar demand into the year-end from deleveraging flows
might be showing some sign of cooling. A fall in volatility also
indicated that extreme risk aversion may be easing.
"We're seeing some year-end position adjustment. With
volatility coming down, it may prompt some investors to dabble
in risk," said Geoffrey Yu, strategist at UBS in London.
By 1150 GMT, the euro was up 1.1 percent on the day at
$1.3171, having hit a six-week high of $1.3186 earlier in the
session.
Implied volatility on one-month dollar/yen currency options
fell below 20 percent on Thursday compared with that level seen
at the start of the week <JPY1MO=>.
The single currency spiked late on Wednesday after the Stark
comments, while implied euro/U.S. rate spreads reflected a
cooling in ECB rate cut expectations. By contrast, the U.S.
Federal Reserve is expected to cut borrowing costs again next
week.
"If the euro zone is being perceived to still have rates at
substantially higher levels then obviously there's a positive
rate spread, but I'm not convinced that its ultimately going to
be positive as the dynamics of the euro zone economy are pretty
weak," Rabobank markets strategist Jeremy Stretch said.
Against a basket of currencies, the dollar was down 1.0
percent at 84.604 <.DXY>, while it also dipped 0.4 percent
versus the yen to 92.18 yen <JPY=>.
The Swiss National Bank became the latest leading central
bank to cut interest rates, but its impact was limited as the 50
basis point move paled in comparison with more dramatic
reductions from other central banks last week.
The dollar traded up at 1.1927 Swiss francs compared with
1.1905 francs <CHF=> just before the SNB rate decision, and the
euro rose to 1.5713 francs from 1.5625 francs <EURCHF=>.
CRACKS IN GLOBAL PLAN?
There was little reaction in FX markets to the approval of a
$14 billion auto industry bailout plan by the U.S. House of
Representatives. []
While the House stuck to its plan, uncertainty was seen in
the Senate, where a razor-thin Democratic majority cannot ensure
passage. A vote could come as early as Thursday, but some
Republicans have vowed to slow or even block the legislation.
Elsewhere, cracks were appearing in the global effort to
drag the world out of recession on Thursday with Germany
attacking Britain ahead of an EU summit for rushing into debt to
bail out industries and pump up growth. []
In an interview with Newsweek magazine, Finance Minister
Peer Steinbrueck urged governments to pause before pledging to
spend billions of dollars to try to push their economies out of
trouble.
