* Euro off 4-month low after Japan says to buy euro bonds
* Noda says Japan will use euro cash in reserves
* Portugal under pressure to accept financial aid package
* Bond auctions in Spain, Italy, Portugal under scrutiny
* Floods hit Aussie, hedge funds take profits
By Hideyuki Sano
TOKYO, Jan 11 (Reuters) - The euro on Tuesday hovered above a
four-month trough hit the previous day, after Japan said it may
buy about a fifth of the bonds a European rescue fund plans to
sell later this month to finance its bailout scheme for Ireland.
But Finance Minister Yoshihiko Noda suggested Japan would use
its euro cash holdings to buy the bonds, dampening some of the
initial excitement from traders who had thought the move may
involve fresh buying of the European currency.
Japan does not disclose the currency breakdown of its $1
trillion reserves but analysts think only a very small portion is
in the euro and the impact of the news may not last long.
The euro could easily return to its current downtrend given
mounting worries over this week's heavy schedule of debt offers
by southern European countries, market players said.
"I don't think these comments change the backdrop for the
euro at all," said Todd Elmer, currency strategist for Citi in
Singapore.
"Despite the fact that we're seeing this groundswell of
international support, it doesn't really change or address the
underlying problem and that's not going to change until the
European authorities themselves come up with a more comprehensive
solution to mitigate the fallout from the debt crisis."
The common currency last traded at $1.2940 <EUR=>, down 0.1
percent from late New York levels, having risen as high as
$1.2992 following Noda's comments.
The euro stayed below its 200-day moving average at $1.3072
and remained within easy reach of Fibonacci support at $1.2794,
the 61.8 percent retracement of a June to November rally.
The focus this week is on whether Lisbon will be able to
raise funds in the debt market on Wednesday or be forced to turn
to the EU and IMF for financial aid.
Markets have already pushed the 10-year Portuguese yield to a
punishingly high 7.1 percent, compared with 2.9 percent for
safe-haven Germany.
Bank of Portugal board member Teodora Cardoso said on Monday
that the country would be able to put its debt crisis behind it
more easily if it received international financing, according to
news agency Lusa [].
In addition to Portugal's debt offer on Wednesday, Italy and
Spain are all due to tap the bond market for funds on Thursday.
Investors were nervous about whether these highly indebted
countries will be able to raise funds at sustainable levels in
2011. []
Some analysts said the euro could gain once these auctions
were out of way.
"Euro zone peripherial bonds tend to be sold on worries
before auctions and bought back after auctions. If this pattern
is repeated, the risk for the euro is on the upside, rather than
downside," said Junya Tanase, a currency strategist at J.P.Morgan
Chase Bank.
The euro climbed on the crosses, rising to 107.50 yen
<EURJPY=R> from a four-month low of 106.83 yen set on Monday.
It was steady against the Swiss franc at 1.2530 francs
<EURCHF=R> from Monday's low of 1.2432.
The Swiss franc was restrained in part by talk the
authorities could again try to curb the currency's strength. The
Swiss economy ministry has called business leaders for a meeting
this Friday to discuss possible remedies []
The pause in the euro's decline saw the dollar index <=USD>
retreat from a six-week peak around 81.313 set overnight. The
index, which tracks the greenback's performance against a basket
of major currencies, was last at 80.97.
The dollar bought 83.00 yen <JPY=>, a gain of 0.4 percent on
the day following Japanese importers bids, though it is still
down from a recent high of 83.70 yen.
As the dollar's broad recovery continues, the Australian
dollar tanked, with the news of more floods in the country's
northeast prompting speculators to take profits on the Aussie's
rally to a 28-year high near $1.0260 set on Dec. 31.
The Aussie fell more than one percent on the day to hit a
one-month low of $0.9820 <AUD=D4>, slipping below trendline
support around $0.9856 as the massive floods, which have already
disrupted coal mining, the country's major export, raced towards
Brisbane, the country's third most populous city. []
The Aussie held just above its 90-day moving average of
$0.9814 and key support at around $0.9810 from a 61.8 percent
retracement of its rally last month.
The Aussie declined sharply against the euro, which rose 1.3
percent to A$1.3158 <EURAUD=R> after the European currency fell
to an all-time low of A$1.2910 in late December.
(Additional reporting by Ian Chua in Sydney, Masayuki Kitano in
Singapore, Kaori Kaneko in Tokyo and Reuters FX analysts Krishna
Kumar in Sydney and Rick Lloyd in Singapore; Editing by Joseph
Radford)
