* Euro heads for biggest weekly gain since May, 2009
* Dollar index hits 1-month low; eyes on 85 area
* Swiss franc hits new record high vs euro
(Adds quote, updates prices, changes byline, changes dateline,
previous LONDON)
By Wanfeng Zhou
NEW YORK, June 18 (Reuters) - The euro held near a
three-week high against the U.S. dollar on Friday, heading for
its biggest weekly gain in more than a year as results of
Spain's bond auctions eased worries about the European debt
crisis.
But the dollar appeared increasingly vulnerable to further
losses after falling below a key chart level.
The euro steadied around $1.24 after a solid Spanish
government bond auction on Thursday eased concerns about the
country's public finances and investors unwound the large short
positions accumulated during the currency's sell-off in recent
months.
The dollar slipped, especially against the Japanese yen,
after disappointing U.S. economic data this week prompted
investors to scale back expectations of a U.S. Federal Reserve
interest rate rise.
"We had some nice euro gains and dollar weakness over the
course of this week. We're going to see whether the euro is
going to sustain these gains and press on toward $1.25," said
Brian Dolan, chief strategist at Forex.com in Bedminster, New
Jersey.
"But if we see a move back below $1.2340/50, it looks like
we might see some end of week profit-taking and selling of
euros," he added.
In early New York trading, the euro was last at $1.2369
<EUR=>, down 0.1 percent, after rising as high as $1.2417 on
electronic trading platform EBS, a three-week high.
The dollar dipped to a three-week low against the yen at
90.45 yen <JPY=>, and was last at 90.64 yen, down 0.4 percent.
The Swiss franc gained after Switzerland's central bank on
Thursday backed away from its pledge to fight excessive
currency strength and said that for now deflation risks have
receded. []
The euro slid to a record low <EURCHF=> at 1.3730 Swiss
francs, according to Reuters data, while the dollar hit a
one-month low of 1.1090 francs <CHF=>.
REBOUND FACES STRESS TEST RESULTS
The euro has rebounded about 2 percent against the dollar
this week, the biggest weekly rise since May 2009, pulling the
currency further away from its four-year low of $1.1876 struck
on EBS on June 7.
"The euro remains upside corrective and on track to test
the $1.2445 2009 low and inter-year pivot," technical analysts
at Commerzbank said.
Traders also said options with a strike price at $1.2400
were set to expire later in the day. Option barriers were
lurking around $1.2450, capping the upside, they added.
A continuation of this rally, however, seems subject to the
results of the stress tests that have been agreed to for
European banks.
European leaders agreed on Thursday to publish details of
stress tests showing the financial health of big banks next
month. Some in the market said the release of stress tests
would boost trust in European banks but others were concerned
they could reveal fragility in the sector and hurt the euro.
"They could be quite significant if they in fact show that
significant capital needs to be raised by some of the major
European banks," Forex.com's Dolan said. "Euro zone is by no
means out of the woods."
Analysts at BNP Paribas see the euro's corrective rebound
running out of steam at around $1.2525, saying flows data
suggest the current rebound is "not backed by real money
investment flows."
The dollar index <.DXY> was flat at 85.679, after falling
to a one-month low at 85.453. Technically, it looked vulnerable
after it broke through support at 85.85, with the next key
level seen in the 85.13 area, its May 21 low.
(Additional reporting by Tamawa Desai in London)
(Editing by Theodore d'Afflisio)
