* Solid demand at Spain auction lifts euro; gains capped
* ECB in focus; traders await comments from Trichet
* Options keep euro within $1.20-$1.21 range
By Naomi Tajitsu
LONDON, June 10 (Reuters) - The euro rose on Thursday as
strong demand at a Spanish bond auction eased concerns about how
Spain will fund its large debt, while investors awaited a
European Central Bank news conference.
Peripheral euro zone government bond yield spreads over
German benchmarks narrowed after Madrid's auction of three-year
bonds, prodding the euro higher. Widening spreads in recent days
have weighed on the single currency. []
Traders said market participants were wary of taking on
significant long euro positions, with option expiries at $1.20
and $1.21 later in the day also helping to confine the single
currency within a $1.20-$1.21 range.
Investors are looking for ECB President Jean-Claude Trichet
to explain the central bank's government bond-buying programme
when at a 1230 GMT news conference. The ECB earlier held
interest rates at a record low 1.0 percent.
"Trichet is likely to emphasise that peripheral bond
purchases are all about providing liquidity in dysfunctional
markets, rather than quantitative easing," said Adam Cole,
global head of currency strategy at RBC.
He added that assurances the plan would be reversed as soon
as liquidity improves may further support the euro, given that a
build-up in short positions in the single currency had increased
the need for investors to trim those positions.
Investors will also look for hints to whether the ECB will
offer extra funds to banks to ease strains from the euro zone
debt crisis. []
At 1146 GMT, the euro was up roughly half a percent on the
day against the dollar <EUR=> at $1.2040, treading above $1.1876
hit on Monday for the first time in more than four years.
Traders said investors were selling on rallies towards
$1.21, but a break above $1.21 could see the euro extend gains.
Analysts said solid demand at the Spanish auction had
cemented support for the euro. The amount of bonds sold came in
at the top of the expected range, even though they were sold at
a premium above a similar issue in April.
"(The auction) adds to the story that the euro may be due a
bit of a bounce as it has come a long way down in a relatively
short space of time," said Gavin Friend, currency strategist at
nabCapital.
TECHNICAL RESISTANCE
But technical analysts said the euro's downward trend would
remain intact barring a move above $1.2135, the 50 percent
retracement of the 2000-2008 euro rally.
Debt problems in several euro zone countries, coupled with
worry about the euro's future, have caused the currency to fall
around 16 percent against the dollar this year.
Against the yen, the euro rose 0.3 percent to 109.73 yen
<EURJPY=R>. The dollar was down 0.1 percent at 91.20 yen <JPY=>,
staying above its 200-day moving average at 90.90 yen.
Earlier, Dai Xianglong, chairman of $114 billion China's
National Social Security Fund, said the euro would gradually
stabilise, relieving some in the market who have fretted that
the euro zone debt crisis could prompt central banks, including
China's, to cut their euro reserves. []
The euro was also helped by China confirming exports jumped
48.5 percent in May from a year earlier, which buoyed shares and
riskier currencies. []
The Australian dollar rose 1.7 percent against the U.S.
dollar <AUD=D4>, buoyed by strong Australian jobs data, while a
rate rise in New Zealand dollar lifted the Kiwi 1.5 percent
versus the U.S. dollar <NZD=D4>.
(Additional reporting by Jessica Mortimer)
