* Euro rises on view Irish debt crisis may be easing
* Rally seen as driven by speculators, event risk looms
* Spain bond auction goes smoothly but yields higher
* Stocks, higher-yielding currencies gain
(Adds quote, updates prices)
By Neal Armstrong
LONDON, Nov 18 (Reuters) - The euro rallied on Thursday as
optimism that Ireland's debt crisis may be easing fuelled
speculative buying, but the move was seen as undermined by
peripheral risks elsewhere and position-squaring into the
year-end.
The dollar was broadly softer after subdued U.S. inflation
data on Wednesday reinforced the U.S. Federal Reserve's case for
monetary easing.
"We view this as a short-term speculative rally in the euro,
driven by weaker U.S. CPI and some optimism for Ireland as the
IMF and EU arrive in Dublin for talks," said Manuel Oliveri,
currency analyst at UBS in Zurich.
"There are other factors at play for the dollar. Year-end
flows should be supportive as profit-taking versus emerging
currencies fuels repatriation," he said.
Uncertainty about the Irish crisis, which has also supported
the dollar recently, looked to be loosening its grip on markets
after Dublin agreed to work with a European Union-International
Monetary Fund mission on urgent steps to shore up its shattered
banking sector.
The cost of insuring Irish debt against default fell as
investors grew increasingly confident that a deal would be
reached. []
The euro <EUR=> hit a session high of $1.3664 to the dollar.
As of 1225 GMT, it was up 0.9 percent on the day at $1.3645. The
single currency had hit a seven-week low of $1.3446 on Tuesday.
Traders said stop-losses were triggered on the break of
Ichimoku resistance at $1.3630. The next resistance was seen at
$1.3765, the 38.2 percent retracement of this month's fall.
"IMF involvement points powerfully towards funding support
for Ireland, probably to ring-fence the banks, which reduces
risks to some extent," said Ray Farris, currency strategist at
Credit Suisse.
"But this is not a silver bullet for Ireland. The Irish
budget and election are its next event risks," he said.
The euro is still down some 5 percent from a 10-month high
above $1.4280 set on Nov. 4.
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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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Some analysts saying that even if there a quick resolution
is reached over Ireland, players would fret about other
peripheral euro zone economies and their debt levels, with
Portugal thought to be in the market's sights.
A Spanish bond auction passed relatively smoothly, as it
sold 3.7 billion euros worth of 10 and 30-year bonds, albeit at
higher yields. []
Against the yen, the euro rose 1.0 percent to 113.82 yen
<EURJPY=R>.
RISK-ON
Investors' risk appetite drove U.S. stock futures up 1.1
percent <SPc1>, and higher-yielding currencies also gained. The
Australian dollar rose 1 percent to $0.9900 <AUD=D4>, up from
this week's low around $0.9726.
"It is a risk-on environment today, and we are seeing an
outperformance of riskier assets," said Christian Lawrence,
currency strategist at RBC Capital Markets.
Subsequently, the dollar index <.DXY>, which tracks the
greenback's performance against a basket of major currencies,
dropped 0.8 percent to 78.438, off Tuesday's seven-week high of
79.461.
Data on Wednesday showed U.S. core consumer inflation rose
0.6 percent from a year ago, the smallest increase since records
started in 1957 and backing up the case for the Fed to deliver
all of its $600 billion of quantitative easing.
Traders also say hedge funds are likely to close dollar
short positions ahead of their book-closing later in the year.
The dollar, which gained 4 percent from a 15-year low to a
high of 83.60 yen <JPY=> this month, held at 83.20 yen.
(Additional reporting by Tamawa Desai; Editing by Hugh Lawson)
