* Euro ticks higher versus dollar on Asia, Mid-East demand
* Scepticism over debt and banking problems dents sentiment
* Dollar hits 8-week high vs yen as U.S. yields rise
* U.S. retail sales in focus, could boost dollar
(Adds quote, detail)
By Neal Armstrong
LONDON, Feb 15 (Reuters) - The euro edged up versus the
dollar on Tuesday on demand from the Middle East and Asia, but
it remained vulnerable on scepticism over whether euro zone
leaders will agree a solution to the region's debt crisis.
A jump in short-dated U.S. yields helped push the dollar to
an eight-week high against the yen as market players awaited
U.S. retail sales data and a New York manufacturing survey at
1330 GMT, which analysts said could boost the greenback.
Negative sentiment towards the euro was reflected in its
falls against other currencies as it hit a decade low against
the Swedish crown <EURSEK=D4> of 8.7290 crowns and a four-week
low versus sterling <EURGBP=D4> of 83.84 pence.
"Overall the euro is very vulnerable and any rebound is
likely to be unsustainable," said Ian Stannard, currency
strategist at BNP Paribas.
"There are concerns about the banking system, and yield
differentials (between the euro zone and the U.S.) are heading
lower, so all the ingredients are there for the euro to come
under more pressure".
Peripheral euro zone yield spreads have been widening in the
past week on uncertainty over a rescue package for the region,
and there was little sign the recent unease had been tempered by
an agreement from European finance ministers on Monday.
The euro <EUR=> was up 0.3 percent against the dollar at
$1.3520, having broken above its 100-day moving average at
$1.3541 to hit a session high of $1.3551.
It held above a three-week low of $1.3428 hit on Monday when
reports that rescue plans for WestLB were under threat triggered
selling. []
Traders said Middle East demand had triggered stop-losses
through $1.3530 en route to the session highs, while Asian
accounts were reportedly looking to buy on dips back to the
$1.3450 region.
The next support is the 55-day moving average at $1.3361, in
line with the 50 percent retracement of the euro's January to
February rally.
Finance ministers agreed on Monday that a permanent rescue
mechanism to be set up from 2013 would total 500 billion euros,
but there was no agreement over how to beef up its existing
rescue fund. []
"EU finmins have provided nothing more than a sweetener for
2013. They don't address the fact that Portugal faces huge
redemptions in April and may be forced into a bailout in the
next few months," said Jane Foley, senior currency strategist at
Rabobank in London.
The euro showed little reaction to German analyst and
investor sentiment rising slightly in February amid confidence
in Germany's economic recovery, according to a survey by the ZEW
economic think tank on Tuesday. []
YIELD DIFFERENTIALS
Yield differentials were less favourable for the euro, with
two-year German bonds yielding 0.54 percentage points more than
U.S. Treasuries -- the narrowest yield spread in nearly a month
and sharply below a two-year high of 0.82 percentage points hit
in January.
The dollar also rose to an eight-week high against the yen
<JPY=> of 83.76 yen, lifted as the two-year U.S. Treasury yield
<US2YT=RR> rose to 0.883 percent, its highest since May 2010.
Traders think a strong reading in U.S. retail sales due at
1330 GMT could fuel a further rise in those yields, boosting the
dollar. Retail sales, which have been a bright spot in the
economy, are expected to show 0.6 percent growth in January from
the previous month. <ECONUS>
The dollar index was down 0.2 percent at 78.449. <.DXY>
(Additional reporting by Jessica Mortimer; Editing by Hugh
Lawson)
