* Near-term target for euro around $1.2580
* Talk of euro option barriers at $1.25 and $1.31
* News of Morgan Stanley probled by authorities lifts yen
By Kaori Kaneko
TOKYO, May 12 (Reuters) - The euro slipped on Wednesday on
nagging worries about the euro zone's ability to tackle its debt
crisis, while sterling trimmed gains made against the dollar
after a new coalition UK government was formed.
Risk aversion moves lifted the yen after the online edition
of Wall Street Journal, citing people familiar with the matter,
said U.S. federal investigators are probing whether Morgan
Stanley <MS.N> misled investors about mortgage-derivative
products it helped design and sometimes bet against.
[]
The euro remained under selling pressure with investors still
sceptical about whether the euro zone economies could deliver the
drastic spending cuts and tax increases needed to get their
fiscal houses in order.
Sterling slipped back from highs hit the previous day after
Conservative leader David Cameron became Britain's new prime
minister.
"It will take time to solve the fundamental problem of fiscal
debt in the euro zone. And the euro is expected to be weighed
down although some will probably buy on dips as short positions
in the currency have accumulated," said Mitsuru Sahara, chief
manager at the currency derivatives trading department at Bank of
Tokyo-Mitsubishi UFJ.
"The market will continue to watch the degree of commitment
of central banks in the euro zone economies and authorities such
as the IMF to the debt problem in the area," he said.
The euro was trading around $1.2635 <EUR=>, down 0.2 percent
from late U.S. trade on Tuesday, having retreated from Monday's
high near $1.3100. One near-term downside target for the euro may
be around $1.2580, near Friday's low, said a trader at a Japanese
bank.
In one potentially supportive factor, traders cited talk of a
double no-touch option position in the euro with barriers at
$1.25 and $1.31. Such a position suggests that the holder would
buy euros on any drop towards $1.25 to defend that position until
it expires.
Against the yen, the euro was down 0.4 percent at 117.02 yen
<EURJPY=R>, having fallen from above 122 yen touched earlier this
week.
Euro/yen remains on a downtrend after its 21-day moving
average slipped below the 65-day moving average on Tuesday,
forming a so-called "death cross", a bearish sign, Bank of
Tokyo-Mitsubishi UFJ FX analysts said in a note.
The dollar inched down 0.1 percent to 92.60 yen <JPY=>.
The higher-yielding Australian dollar lost 0.4 percent to
82.65 yen <AUDJPY=R> as investors trimmed risky assets.
"A WSJ report prompted investors to reduce risks and there is
a mood that players are looking for negative factors now," an FX
trader at a Japanese trust bank said.
On the political front, Conservative party leader David
Cameron took over as British prime minister after securing a
power-sharing agreement between his centre-right party and the
smaller Liberal Democrats. []
Market players said they were keen to see if the
Conservative-led government will take swift action to bring down
spending.
Sterling slipped 0.1 percent to $1.4901 <GBP=D4> after rising
above $1.5000 on Tuesday. The euro edged up 0.2 percent against
sterling to 84.78 pence <EURGBP=D4> after falling 1.6 percent on
Tuesday.
A drop below 84.28 pence would take the euro to its lowest in
11 months against sterling.
(Additional reporting by Masayuki Kitano, Rika Otsuka; Editing
by Joseph Radford)
