* Euro steady; Spain sells debt, but banking worries remain
* Swiss franc up on safe-haven bid amid Middle East tension
* U.S. CPI data awaited at 1330 GMT
By Jessica Mortimer
LONDON, Feb 17 (Reuters) - The euro steadied versus the
dollar on Thursday, with solid demand at a Spanish debt auction
offset by broader euro zone banking and sovereign debt concerns,
while concern about Middle East tensions lifted the Swiss franc.
Spain and France sold a combined 11.87 billion euros of debt
at auctions which analysts said fared well, with a longer-dated
Spanish bond notably attracting good bids as it looked cheap on
the Spanish curve. [] []
The Spanish auction helped pull the euro off a session low
versus the dollar, though the fragility of the euro zone banking
sector was highlighted by a jump in emergency overnight
borrowing at the European Central Bank. []
"The Spanish government sold the debt, but there are
concerns about the increased overnight borrowing at the ECB,"
said Gavin Friend at nabCapital.
He added that banking sector concerns should be enough to
prevent the euro rising above resistance around $1.3625. Euro
sentiment came under pressure earlier this week due to
uncertainty over rescue plans for German lender WestLB.
The euro was down 0.1 percent against the dollar at $1.3555
<EUR=>, off a session low of $1.3537 when it broke below
reported stop loss orders at $1.3550. Support was seen above the
100-day moving average at $1.3539.
Against the Swiss franc, the euro <EURCHF=> was down 0.4
percent at 1.2965 francs, while the dollar was down 0.2 percent
at 0.9569 francs <CHF=>.
Middle East concerns helped the Swiss franc move beyond 1.30
francs per euro as investors sought safe havens, though analysts
said a continued rise in stocks suggested that investors'
aversion to risk was limited.
"If events in the Middle East do escalate we will see safe
haven flows which will help the Swiss franc, but equities are
still holding up for now," said Kenneth Broux, market economist
at Lloyds.
Investors kept an eye on spreading anti-government protests
after Bahraini police stormed a protest camp on Thursday, while
tensions in the Middle East were underlined by plans -- later
cancelled -- for Iranian warships to sail through the Suez
Canal. [] []
DOLLAR STEADY; VOLS LOWER
Against a basket of currencies, the dollar <.DXY> was up 0.1
percent at 78.252.
Investors awaited U.S. CPI data due at 1330 GMT for any
signs of whether U.S. inflation is ticking up, after Federal
Reserve minutes suggested policymakers were in no hurry to shift
an ultra-loose monetary policy []
The euro and other major currencies remained trapped in
ranges. Expectations that spot prices will not move too far in
one direction or the other pushed euro/dollar implied volatility
to 10.7 percent <EUR1MO=> its lowest level since September.
"Vols are suggesting that there is unlikely to be a range
break any time soon," said nabCapital's Friend.
Euro/Swiss franc one-month volatilities <EURCHF1MO=> fell on
Thursday, although risk reversals continued to move in favour of
Swiss franc calls, with the one-month 25-delta <EUCH1MRR=ICAP>
around 1.40 compared to a neutral bias at the start of the year.
Options analysts said selling demand from hedge funds drove
euro/franc implied vols lower, adding that a move in the spot
price closer to 1.30 francs earlier this week had increased such
demand.
(Additional reporting by Naomi Tajitsu; Editing by Hugh Lawson)
