* Investors eye EU meeting for potential Greek support
* Weight of euro positioning forces short squeeze
* Overall euro sentiment still negative
(Adds quotes, detail)
By Neal Armstrong
LONDON, Feb 9 (Reuters) - The euro rose on Tuesday, lifting
further off a recent 8 1/2-month low against the dollar, as
market speculation that a bailout of Greece could soon be
organised prompted a squeeze of vulnerable short positions.
Talk of a possible rescue for Greece emerged after officials
at the European Central Bank and the Reserve Bank of Australia
said ECB President Jean-Claude Trichet was cutting short his
visit to Australia to attend a Feb. 11 European Council meeting
on the ecomomy. []
But a spokesman for Trichet said the ECB chief had chosen an
earlier flight from a meeting of central bankers for logistical
reasons. This caused the euro to pare gains briefly.
[]
Analysts said the euro's rise also reflected unwinding of
what was seen as quite extreme positioning, with the latest CFTC
data showing a build-up of short euro positions. []
"The extent of positioning has made the euro more sensitive,
so that speculation of something happening with Greece has
allowed it to rebound," said Ian Stannard, currency analyst at
BNP Paribas.
"But overall the picture is still very negative for the euro
and any rebound in euro/dollar is providing a selling
opportunity," he said.
For a graphic on euro positioning, click on
http://graphics.thomsonreuters.com/0210/EZ_ERCFTC0210.gif
At 1242 GMT the euro <EUR=> was up 0.7 percent on the day at
$1.3760, with traders saying the currency's gains accelerated
after going through stops at $1.3750.
The euro was firmer versus the yen with gains of around 1.3
percent at 123.53 yen <EURJPY=R>. It fell to its lowest in
nearly a year on Friday as sentiment on the euro zone currency
deteriorated further but picked up some of the lost ground on
Monday.
"We are seeing a squeeze of some short euro positions which
were established at low levels as market speculation of a Greek
bailout is seen as positive in the near term," said Antje
Praefcke, currency strategist at Commerzbank in Frankfurt.
However, gains were capped as concerns about the fiscal
positions of euro zone states including Greece, Portugal and
Spain weighed on sentiment towards the single European currency.
For a graphic on the euro and Greek bond spreads, click
http://graphics.thomsonreuters.com/0210/EZ_EURGR0210.gif
"Overall sentiment towards the euro remains bearish", said
HSBC's Paul Mackel.
BERNANKE AHEAD
A slight increase in risk appetite fuelled some paring of
yen longs established during last week's bout of risk reduction,
with the dollar <JPY=> rising 0.5 percent to 89.71 yen.
The dollar held a softer tone versus a basket of currencies
<.DXY>, however, trading down 0.4 percent at 79.957.
On Wednesday, markets will watch congressional testimony by
Federal Reserve Chairman Ben Bernanke, who is expected to speak
about unwinding of emergency Fed liquidity programmes and
implications for the economic recovery.
The yen also pared recent gains versus higher-yielding
currencies such as the Australian dollar <AUDJPY=R>, though
technical traders said the outlook for this pair remained
negative while under the 200-day moving average at 79.34.
(Additional reporting by Jessica Mortimer)
