* Investors unwind safe-haven positions
* Euro supported by Asia demand, risk appetite
* U.S. dollar weaker across the board
(Recasts; updates prices, adds quotes, changes byline)
By Julie Haviv
NEW YORK, Feb 8 (Reuters) - An appetite for riskier
currencies strongly favored the euro versus the U.S. dollar and
Swiss franc on Tuesday, with more gains seen as slightly calmer
headlines from the Middle East reduced the appeal of safe-haven
currencies.
The euro gained after underperforming for most of the past
week, lifted by demand from Asian central banks and buying
against the Australian dollar after a Chinese interest rate
hike fueled concerns over that country's economic growth and
demand for commodities.
"Safe-haven currencies fared well during the height of the
tensions in Egypt last week, but as the headlines subside
somewhat investors are unwinding some of those positions in
exchange for riskier currencies," said Greg Anderson, G10
strategist at CitiFX in New York.
Weak demand for a U.S. Treasury bond sale had a slight
negative impact on the dollar, he said.
U.S. Treasury debt prices touched session lows in early
afternoon trading after weaker-than-expected results at a $32
billion auction of three-year government debt. The note sale is
the first leg of this week's $72 billion February refunding.
Traders said central bank buying of yen and fiscal year-end
repatriation in Japan have supported the yen against the dollar
despite a surge in U.S. yields in recent weeks.
The U.S. dollar struggled against a major currency basket,
slipping 0.1 percent to 77.918 <.DXY> and lost 0.1 percent
against the yen <JPY=> to 82.21.
"Over the next couple of weeks the euro will likely stay
within a range and not go below $1.3509 or above $1.3862,"
Anderson said.
The euro rose above key resistance at $1.3680, a high on
electronic trading platform EBS last Friday. If euro/dollar
manages to extend beyond $1.3680, analysts see the next
resistance level at $1.3767, the Feb. 2 low.
The euro's strength against the dollar could prove to be
temporary, with comments from European Central Bank President
Jean-Claude Trichet last week sharply diminishing expectations
of a near-term European Central Bank rate hike.
The euro <EUR=EBS> gained 0.4 percent versus the greenback
to $1.3646 as investors booked profits on long dollar positions
taken in the last four days.
Other euro-linked assets were also higher. The
CurrencyShares Euro Trust <FXE>, an exchange-traded fund listed
on the Chicago Board Options Exchange, was up 0.9 percent at
$136.28. The ETF holds euro on-demand deposits in
euro-denominated bank accounts.
The euro also benefited from buying against the Aussie
dollar, traders said, after a Chinese rate increase on Tuesday.
It had fallen significantly versus the Australian currency the
last two years.
China's central bank raised its benchmark one-year deposit
rate by 25 basis points to 3 percent, its second increase in
just over a month, intensifying its fight against stubbornly
high inflation. For details, see []
The Aussie dollar is the currency most sensitive to Chinese
interest rate policy as Australia is China's biggest supplier
of commodities.
The decline in implied volatility, a measure of risk
sentiment in major currencies, has also spurred buying of
riskier currencies. The one-month implied volatility on
euro/dollar fell to its lowest in more than five months on
Tuesday, at 10.59 percent <EUR1MO=>.
Risky trades thrive in an environment of low volatility.
The Australian dollar <AUD=D4> initially fell against the
U.S. dollar after the Chinese rate hike but recovered in New
York trading to move up 0.3 percent at US$1.0159. Near-term
support is seen at $1.0083, last Friday's low.
MacNeil Curry, chief rates & currencies technical
strategist, said in a BofA Merrill Lynch Global Research report
thst since 2000, the AUD/USD shows a very strong propensity to
rally at the start of the Lunar New Year.
"A break of 1.0185/1.0260 would confirm a return to trend,
targeting 1.06/1.10," he said. "Given our bearish EUR view,
this should also result in a weaker EUR/AUD, with the current
bounce an opportunity to get short."
(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by
Dan Grebler)
