* Euro under pressure as Greek/German bond spreads widen
* Euro breaks through $1.33 before trimming losses
* Merkel sets conditions on German aid for Greece
* Fed expected to sound upbeat note on economy this week
(Adds detail, quote, updates prices)
By Steven C. Johnson
NEW YORK, April 26 (Reuters) - Confusion about the timing
and amount of emergency aid for Greece prompted investors to
sell the euro on Monday as markets worried whether the euro
zone country will manage to avert a debt default.
The euro dipped briefly below $1.33, falling against the
greenback for the seventh trading session in the last eight. It
also hit a three-month low against sterling on investor concern
about potential conditions attached to a loan for Greece.
The Federal Reserve's policy meeting this week drew renewed
attention to when the U.S. central bank will likely begin
raising interest rates. The dollar rose above 94 yen as
investors bet the Fed would raise rates before year end, well
ahead of any move by the Bank of Japan.
Confusion over aid for debt-stricken Greece arose on Monday
after German Chancellor Angela Merkel said the euro zone
member, which on Friday had requested emergency aid, must
commit to further savings measures and show it can return to a
sustainable economic path before Germany can approve aid.
[].
Greece had tried to reassure investors over the weekend
that the 45 billion euros ($60.5 billion) in aid from the
European Union and the International Monetary Fund would arrive
in time to avert the euro zone's first sovereign default.
"Aid for Greece still doesn't seem like a completed deal,
so all the uncertainty about the timing and details of a Greek
plan limits demand for euro," said Michael Malpede, analyst at
Easy Forex in Chicago.
Two-year Greek government debt yields rose above 12 percent
and the gap between 10-year Greek and German bonds swelled to
679 basis points, the highest since the euro was introduced.
The euro fell 0.3 percent to $1.3338 after earlier hitting
a session low of $1.3291 <EUR=>. Against the yen, it fell 0.2
percent to 125.45 yen <EURJPY=> and against sterling it was
down 1 percent to 86.14 pence <EURGBP=D4>, just above a
three-month low touched earlier.
Sterling also rose 0.7 percent to $1.5484 <GBP=D3> as polls
in Britain showing slightly higher Conservative Party support
ahead of next week's election reduced the chances of a hung
Parliament.
The dollar rose 0.2 percent to 94.10 yen <JPY=> and was
unchanged at 0.9999 Canadian dollars <CAD=D3>.
"Greece's fiscal nightmare should not obscure the fact that
economic and financial conditions have stabilized to the point
where monetary policy risks are tilting towards the tighter --
or at least less accommodative -- side in virtually every major
region beyond Japan," said Cameron Umetsu, a senior economist
at Mizuo Corporate Bank wrote in a note to clients Monday.
The Fed is expected to sound an upbeat note about the
economy when it meets this week, setting the stage for a rate
increase later this year, while investors expect the Bank of
Canada to raise rates as soon as June.
Australia's central bank has already lifted rates twice
this year, which has helped boost the Australian dollar. On
Monday, it hit a 19-month high against the yen at 87.59 yen
<AUDJPY=R>.
Rate hikes in the euro zone, though, look to be some way
off, thanks largely to Greece's debt troubles. The euro has
lost nearly 7 percent against the dollar this year.
Investors worry that other indebted euro zone countries may
also face financing trouble. Yields on Portugal's two-year
government bonds rose more than 100 basis points on Monday.
"It's not just about Greece but also what Greece means for
the rest of Europe," said Michael Hart, currency strategist at
Citigroup. "There's clearly a lack of credibility with the
package. It's not clear whether this is going to solve the
liquidity issue for Greece."
(Additional reporting by Natsuko Waki in London; Editing by
Leslie Adler)
