* Euro slips versus dollar as sterling tumbles
* Pound posts largest daily fall in a year versus greenback
* Hopes of Greece deal cushion euro's fall
By Neal Armstrong
LONDON, March 1 (Reuters) - The euro slipped on Monday as a
significant sell-off in sterling spooked currency markets,
prompting a knee-jerk drop in the single European currency
versus the dollar.
The euro had been steady in earlier trade amid hopes that a
support deal for Greece may be near, but aggressive selling of
sterling due to worries over the shape of the next parliament
drove investors to the perceived safety of the dollar.
The pound <GBP=D4> had already shed close to three US cents
before a large sell order from a UK clearer took the rate
through key technical support at $1.4850, setting off a raft of
stop-loss orders as the rate gapped down to $1.4781.
The sell-off in sterling represented its biggest one-day
fall against the greenback in percentage terms since February
2009.
"The moves we are seeing this morning are all
sterling-driven," said Ian Stannard, currency strategist at BNP
Paribas.
"Key levels are breaking in the pound as the economic and
political picture in the UK is bleak. The sterling/dollar move
has pulled euro/dollar down."
At 1220 GMT, euro/dollar <EUR=> was trading down around 0.7
percent on the day at $1.3520. It had seen a sharp sell-off from
around $1.3600 when sterling gapped through $1.4850.
Sterling was by far the biggest mover among major
currencies, after a poll showed a growing risk no party will win
a majority in an election due by June 3, prompting a "hung"
parliament that investors worry would be unable to take action
to reduce debt. []
Mortgage approvals for January were also below forecast and
news Britain's Prudential Plc <PRU.L> was in talks to buy AIG's
<AIG.N> Asian arm further dented the pound. [] []
The euro was helped by speculation a visit by EU Economic
Affairs Commissioner Olli Rehn and European Central Bank
Executive Board member Juergen Stark to Athens could move EU
governments closer to a deal on emergency aid. []
Concerns about debt-stricken Greece have undermined investor
confidence in the single currency recently, although uncertainty
over whether and when other EU governments will agree to support
the country remained as German Chancellor Angela Merkel stressed
no decision had been taken. []
"A possible deal with Greece is helping but it is not enough
to remove the worries about the debt situation in southern
Europe and it has not sparked a strong euro rally," said Niels
Christensen, currency strategist at Nordea.
EURO SHORT POSITIONS
Traders said sentiment on the euro remained negative. Data
from the Commodity Futures Trading Commission showed net short
euro positions rose to a fresh record in the week to Feb. 23.
[]
Nordea's Christensen said the focus was switching to central
bank meetings in the euro zone and UK on Thursday and key data
this week. [] []
Surveys on Monday showed manufacturing activity in the euro
zone grew slightly faster than previously thought last month,
though Spain and Greece continued to lag far behind. Euro zone
unemployment was stable. [] []
U.S. ISM data on manufacturing activity is due at 1500 GMT.
<ECONUS>
Traders said the risk of the euro falling further would
increase if it ended this week below a chart support around
$1.3485, which would be a 61.8 percent retracement of a move up
to the November high of $1.5145 from a March low of $1.2457.
The dollar index <.DXY> rose 0.8 percent to 81.026, largely
driven by the sterling move, while the U.S. currency gained 0.5
percent against the yen <JPY=> to 89.30 yen as positive equity
markets stoked some appetite for risk, weighing on the
low-yielding currency.
(Additional reporting by Jessica Mortimer; editing by
Patrick Graham)
