FOREX-Euro rises on Ireland optimism; riskier assets rally

                                
 * Euro rises on cautious optimism over Irish budget
                                
 * Support likely to be fleeting, euro zone weaknesses remain
                                
 * Expectations for further Fed easing fuel risk appetite
                                
 
 (Adds quote, updates prices)
                                
 By Neal Armstrong
                                
 LONDON, Dec 7 (Reuters) - The euro rose on Tuesday on
cautious optimism that Ireland will pass an austerity budget
later in the day, but support for the single currency was
expected to be fleeting as it is still dogged by structural
weaknesses in the euro zone.
                                
 The dollar slipped against a currency basket after comments
from U.S. Federal Reserve Chairman Ben Bernanke stoked
expectations of prolonged easy U.S. monetary policy, supporting
appetite for risk. [ID:nN05271909] 
                                
 The euro remained vulnerable after euro zone policymakers
failed to come up with new policies to tackle the region's debt
crisis. [ID:nLDE6B51VW] But an Irish Times report suggesting
Dublin would pass an austere budget on Tuesday supported
cautious investor optimism. [ID:nLDE6B60DA] [ID:nLDE6B60A6]
                                
 "The euro is gaining some support on optimism that the Irish
budget will be passed, but I expect any rallies to be fleeting.
Structural weaknesses in the euro zone remain," said BTM-UFJ
currency analyst Lee Hardman.
                                
 "It would be far more significant for the euro if the budget
wasn't passed as this would bring down the Irish government and
exacerbate concerns about the debt crisis spreading," he said.
                                
 At 1222 GMT, the euro <EUR=> was 0.4 percent higher on the
day at $1.3363, after rising to $1.3394, more than 1 percent
above Monday's low of $1.3246. Traders said strong demand from a
UK clearer and Middle East accounts helped it to rally in
European trade.
                                
 Euro/dollar volatility slipped on Tuesday, with one-month
vols at 12.5 percent <EUR1MO=>, off nearly 6-month highs around
16 percent last week.
                                
 "Vols have come off but may stay stuck near current levels"
because of risks of further euro declines, one London-based
trader said.
                                
 
                                
 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
                                
 Take a Look on euro zone debt crisis:     [ID:nLDE68T0MG]
                                
 Scenarios on euro zone crisis:            [ID:nLDE6B50PA]
                                
 Graphics package on Europe's struggle with debt:
                                
                               http://r.reuters.com/hyb65p
                                
 PDF on yuan offshore market:  http://r.reuters.com/byg28q
                                
 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
                                
 The picture was complicated by the dollar's own weakness
after Bernanke did not rule out further bond purchases, sending
the greenback to an 11-month low last month.
                                
 Analysts said the fact the Federal Reserve could end up
buying more than its initial target of $600 billion in
government bonds made investors more positive towards riskier
assets and weighed on the dollar.
                                
 "The markets now think monetary policy will stay loose in
2011, and there's no reason to think abundant liquidity will die
down soon," said Stephen Gallo, head of market analysis at
Schneider Foreign Exchange.
                                
 "Risk appetite is up and the short U.S. dollar, long
commodities trade still looks to have legs," he said.
                                
 The dollar fell 0.3 percent versus a currency basket <.DXY>
at 79.324, while European stocks rose 1.2 percent <.FTEU3>.
Commodities firmed, with U.S. crude for January <CLc1> rising to
a 26-month high above $90 a barrel. Gold hit record highs for
the second day in a row. [ID:nLDE6B60GI

                                
 The dollar was little changed at 82.56 yen, off a three-week
low of 82.34. Support was at the bottom of the Ichimoku cloud at
around 81.70.
                                
The Australian dollar traded at $0.9952 <AUD=D4>, close to a
three-week high of $0.9966. It dipped slightly after the central
bank kept rates on hold at 4.75 percent and said inflation would
be little changed over the next few quarters. The Aussie also
recovered from losses on talk about Chinese monetary tightening.
                                
 The official Chinese Securities Journal reported China's
central bank may raise interest rates this weekend to enshrine
its shift to a "prudent" monetary policy in the face of rising
inflation. [ID:nTOE6B6003]
                                
 Such speculation was offset somewhat after China's key
short-term money market rate plunged from two-year highs. Big
banks had previously been locking up large amounts of cash on
expectations of a further increase in reserve requirements in
coming weeks and more policy tightening next year, causing the
benchmark seven-day repo rate to soar. [ID:nTOE6B6058]
 (Additional reporting by Tamawa Desai; Editing by Hugh Lawson)