* Euro gain eroded on concerns over euro zone econ, finances
* Ireland denies seeking IMF help; says needs to cut deficit
* Jittery mkts eyeing ECB rate decision on Thursday
* U.S. Dec retail sales due
(Changes byline, adds quotes, updates prices)
By Veronica Brown
LONDON, Jan 14 (Reuters) - The euro cut broad early gains on
Wednesday as concerns over the single currency bloc's economy
and public finances mounted ahead of Thursday's verdict on
interest rates from the European Central Bank.
The euro had earlier hit session highs on a tentative easing
in extreme risk aversion but reports, later denied, that Ireland
might need IMF help if its economy worsened took it down more
than a cent from those levels.
Data showed Germany's economy grew at its slowest pace in
three years in 2008. More pointedly, the euro zone's biggest
economy had contracted by between 1.5 percent and 2.0 percent in
the final three months of the year, the largest fall since
German reunification in 1990.
"The weakness in the data brings home concern around the
lack of policy stimulus. We'll see what the ECB brings tomorrow,
but the concern is that the data is looking worse for wear,"
said Phyllis Papadavid, currency strategist at SG in London.
The euro stumbled after reports Irish Prime Minister Brian
Cowen said IMF help may be needed if its economic downturn
worsens, although the comments were later denied. []
But Cowen told Irish broadcaster RTE in an interview he
endorsed the view of the country's unions that public finances
are unsustainable. []
"Even with the denial, I think the markets are likely to
conclude that there's no smoke without fire," said Derek
Halpenny, European head of global currency research at BTM UFJ
in London.
Indeed, the cost of protecting Irish government bonds against
default rose sharply with the five-year credit default swap
hitting 207.5 basis points from 193.1 basis points, according to
data from CMA DataVision.
By 1219 GMT, the euro was up 0.1 percent at $1.3218, more
than a cent off a session high of $1.3335 <EUR=>. That was still
above a one-month low of $1.3140 on trading platform EBS the
previous day.
The euro also cut gains versus the yen to last trade at
118.24 yen <EURJPY=>
NERVY MARKETS EYE ECB
Markets were already jittery after Spain and Portugal became
the third and fourth euro zone countries since last week to be
warned by ratings agency Standard & Poor's that their credit
rating is under threat from the global financial crisis.
[]
"The euro zone is going to face its sternest test in 10
years," said Chris Turner, chief currency strategist
"We are seeing some independent euro weakness, given the
severity of the slowdown and concerns about finances given
recent news on credit ratings."
The ECB is widely expected to cut rates by 50 basis points
from the current 2.5 percent to help fight a broad economic
downturn. []
Meanwhile, sterling got a boost, hitting a session high of
$1.4708 <GBP=>, after the British government launched a scheme
to help cash-strapped small firms. []
The Australian dollar also rebounded from one-month lows hit
on Tuesday, rising 1.5 percent to $0.6735 <AUD=>. The dollar was
up 0.1 percent against the yen at 89.29 yen <JPY=>.
Investors are watching U.S. December retail sales, which
will reflect the critical Christmas shopping season. Retail
sales, due out at 1330 GMT, are expected to fall 1.2 percent to
mark a sixth straight monthly drop after a 1.8 percent decline
in the previous month.
(Reporting by Veronica Brown; editing by Stephen Nisbet)
