* Euro eases below $1.37, investors await ECB
* Dlr/yen hits 3-mth low, dragged down by cross/yen fall
* ECB seen holding rates steady, extra liquidity plan eyed
* BOE also seen keeping rates on hold, asset buying in focus
By Satomi Noguchi
TOKYO, March 4 (Reuters) - The euro eased against the dollar
on Thursday ahead of a European Central Bank meeting but retained
some support as investors encouraged by Greece's latest austerity
measures cut some of their record short positions in the single
currency.
The euro was dragged down by its fall against the yen as
short-term players sold higher-yielding currencies after Asian
stocks faltered and prompted investors to trim riskier positions,
traders said. That move also pushed the dollar to a three-month
low against the yen.
The ECB is expected to hold interest rates at a record low of
1.0 percent and outline the next steps in its gradual withdrawal
from emergency lending measures. []
The market focus will be on whether it announces any change
to the extra liquidity it has provided for the banking system,
and traders will also be listening to ECB President Jean-Claude
Trichet's remarks on Greece.
"The market is now waiting to see the results of policy
meetings at the ECB and the Bank of England, putting talk of the
Greek debt problems on to the sidelines temporarily," said a prop
trader for a Japanese trust bank.
"Whether the other euro zone countries react to offer Greece
a safety net will be closely watched. But that may not become a
strong focus until after U.S. jobs data," the trader said.
The pound fell against the dollar but held on to most of the
previous day's rebound after a sharp fall earlier this week,
ahead of a Bank of England monetary policy meeting later in the
day.
The BoE is expected to keep rates unchanged, but there have
been indications it is leaving the door open to more quantitative
easing. Any move to expand its asset purchases could lead to the
pound tumbling again, traders said. []
The euro eased 0.2 percent to $1.3660, giving up some of its
recovery to a two-week high of $1.3736 the previous day on
trading platform EBS, from a 9-1/2-month low of $1.3433 hit
earlier this week.
The pound stood at $1.5056 <GBP=D4>, down 0.3 percent on the
day. It was off Wednesday's high of $1.5131 hit after traders
covered their short sterling positions which had sent it to a
10-month low on Monday.
But the dollar has come under pressure versus the yen on the
back of comments from Federal Reserve officials that interest
rates in the U.S. will stay low for a long time.[]
The greenback fell as far as 88.14 yen, its lowest point
since early December, dragged down by falls in yen crosses and
short-term speculators aiming to trigger loss-cutting orders
below 88.00.
It stood at 88.30 yen <JPY=>, down 0.2 percent.
Traders forecast it should hold above the psychologically
key 88.00 yen level unless Friday's closely watched U.S. non-farm
payrolls for February are significantly below forecasts.
[]
EURO SENTIMENT STAYS FRAGILE
Greece announced plans for a further $6.5 billion in pay cuts
and tax hikes on Wednesday to reduce its deficit, easing worries
about its debt crisis and helping the 10-year Greece-Germany debt
spread narrow to its lowest since mid-February.
But sentiment remains fragile as investors are unsure if the
package will be enough to generate additional support from bigger
European Union members such as Germany and France. The European
Central Bank welcomed Greece's moves ahead of its rate decision
meeting later on Thursday. [] []
"The euro has become increasingly cheap over the past few
weeks relative to high-frequency valuation models. Together with
extreme positioning in the euro, this weakness highlights the
potential for a squeeze should the news flow around Greece turn
slightly more positive," JP Morgan said in a note.
The euro has lost more than 9 percent since November when
sovereign debt problems surrounding Greece and other peripheral
economies in the euro zone emerged. Speculators have piled on the
bad news since then, and the latest data shows they are running
record high short positions against the euro.
The dollar took back a bit of ground after investors moved
into higher-yielding currencies such as the Australian dollar
<AUD=D4> the previous session.
The dollar index <.DXY> was holding at 80, with short-term
support seen around the 79.60 area -- its mid-February low.
Traders have generally been trimming long positions in the
dollar this week after they built up to their highest since
September 2008 the week before.
(Additional reporting by Kaori Kaneko in Tokyo and Anirban Nag
in Sydney; Editing by Hugh Lawson)
