* Investors eye potential Greece rescue
* Weight of euro positioning seen forcing short squeeze
* Euro on pace for best day vs dollar since November
* Risk appetite improves, stocks rise
(Updates prices, adds German government comments)
By Gertrude Chavez-Dreyfuss and Wanfeng Zhou
NEW YORK, Feb 9 (Reuters) - The euro rose against the U.S.
dollar on Tuesday, on track for its best one-day gain since
November, after reports of a possible European bailout for
debt-strapped Greece.
Reuters reported euro zone governments have decided in
principle to help Greece, a member of the 16-member single
currency bloc. []
However, a spokesman for the German government later said
reports that the euro zone has made a decision to aid Greece
were "unfounded."
"If they do come and help Greece, (that) would do it for
now. It would help bring the euro back from the multi-month
lows," said Greg Salvaggio, senior vice president for capital
markets at Tempus Consulting in Washington.
In midday New York trading, the euro <EUR=> was up 1
percent on the day at $1.3789, on track for its best daily
percentage rise since November.
The euro has fallen 9 percent from a 15-month high of
$1.5145 reached in late November over fears about fiscal
problems in Greece, Portugal and Spain.
Speculation about Greece prompted a recovery in global
equities, with U.S. stocks trading more than 1 percent higher.
[].
Analysts said the euro's rise also reflected the unwinding
of what was seen as extreme positioning by investors betting a
weaker euro zone member might default on debt.
The latest data from the Commodity Futures Trading
Commission showed a record build-up of short euro positions,
according to Barclays. []
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For a graphic on euro positioning, click on
http://graphics.thomsonreuters.com/0210/EZ_ERCFTC0210.gif
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In addition, the premium investors demand to hold Greek
government bonds rather than euro zone benchmark German Bunds
fell to its lowest since Jan. 27 on Tuesday, indicating some
easing of Greek-related tensions. [].
"I think it's mainly positioning. Bearish trades on the
euro and those in favor of further spread widening are so heavy
that people are just trying to reduce those bets, having made
some profits," said Sebastien Galy, senior currency strategist
at BNP Paribas in New York. "I think fundamentally nothing has
changed."
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For a graphic on the euro and Greek bond spreads, click
http://graphics.thomsonreuters.com/0210/EZ_EURGR0210.gif
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The euro was firmer versus the yen, with gains of about 1.3
percent at 123.53 yen <EURJPY=R>. It fell to its lowest level
in nearly a year on Friday as sentiment on the euro zone
currency deteriorated further. It picked up some lost ground on
Monday.
A slight increase in risk appetite also fueled some
reduction in yen longs established during last week's bout of
risk reduction, with the dollar <JPY=> rising 0.3 percent to
89.53 yen.
The dollar held a softer tone versus a basket of currencies
<.DXY>, however, trading down 0.7 percent at 79.748.
Sterling initially fell after ratings firm Fitch said
Britain was among the most vulnerable of triple A sovereigns,
but recovered with news about a possible Greek bail-out. The
British pound was last at $1.5706 <GBP=>, up 0.7 percent on the
day.
(Additional reporting by Vivianne Rodrigues; Editing by
Andrew Hay)
