* Euro rises, broad selling momentum cools for now
* Yield spreads for Portugal, Spain vs Germany tighten
* Focus on ECB meet, liquidity ops, possible bond buys
(Adds comment, updates prices)
By Naomi Tajitsu
LONDON, Dec 1 (Reuters) - The euro rose on Wednesday as a
three-day selling spree lost steam, but doubts about whether the
euro zone can contain debt problems facing some states kept the
single currency in range of a 2 1/2-month low versus the dollar.
A slight narrowing of yield premiums of government debt in
Portugal, Spain and Italy over safe-haven German bonds supported
the euro, but market participants said the single currency
remained vulnerable to more selling. []
Investors awaited a European Central Bank policy meeting on
Thursday at which some expect the central bank to keep its
three-month liquidity operations unlimited to help banks
struggling for cash, which analysts said also helped the euro.
"The market's been caught short on euros. Periphery yield
spreads have tightened somewhat, and the market's pricing in the
possibility that the ECB won't be too aggressive tomorrow," said
Geoffrey Yu, currency strategist at UBS.
"The euro's come down quite quickly from $1.40, so some
people just want to take a breather."
ECB President Jean-Claude Trichet on Tuesday suggested the
central bank may expand purchases of government bonds to help
drive down rocketing yields. []
An auction of 12-month Portuguese Treasury bills went
relatively smoothly, although Lisbon was required to pay a
premium on its borrowing. []
Concerns remain that other countries may follow Ireland and
Greece in asking for bailouts, with Portugal widely seen as next
in line, especially after ratings agency S&P on Tuesday put its
A- rating on review for downgrade. []
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Euro zone debt timeline: http://link.reuters.com/nyx95q
Take a Look on euro debt crisis: []
Euro zone crisis coverage http://r.reuters.com/hus75h
Graphic on debt crunch: http://r.reuters.com/zem66q
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
The euro <EUR=> was up 1 percent at $1.3106, pulling away
from Tuesday's 2-1/2-month low of $1.2969 although it stayed
below its 200-day moving average at $1.3124.
Analysts and traders said the euro's 9 percent fall from the
November 4 high of $1.4281 to Tuesday's low left many feeling it
was a good time to take profits on short euro positions.
The euro's drop below $1.3080 meant it had already retraced
50 percent of its rise from the June low of $1.1876 to the
November high in less than four weeks. Traders said there was
support above $1.2950, where options barriers were reported.
"This is more likely to be short-term relief for the euro.
We can't compare this to the Greece bailout. Once a second
country goes the question is who is next, and there is a lot of
focus on Portugal and Spain," said Ankita Dudani, currency
strategist at RBS.
She said Trichet's suggestion that bond buying may be
extended was likely to be viewed positively in the short term,
but further out the euro would lose the support it has had
recently from the ECB's stated plan to exit monetary easing
measures.
DOLLAR SLIDES
The euro's rise lifted other currencies seen as higher risk.
The Australian dollar rose 0.7 percent to $0.9645 <AUD=D4>.
The greenback slipped 0.4 percent versus a currency basket
<.DXY> to 80.857, but stayed near a 2 1/2-month high hit on
Tuesday as the currency, the most liquid and therefore
considered safe, has benefited from the euro's problems.
The safe-haven Swiss franc <CHF=> fell to 1.0066 francs per
dollar, its weakest since late September.
Analysts said if the ECB eases its policy stance or extends
bond buying on Thursday this may help stabilise sentiment.
(Additional reporting by Jessica Mortimer; Editing by John
Stonestreet)
