* Euro rises, broad selling momentum cools for now
* Focus on ECB meet, liquidity policy, possible bond buys
* U.S. backs European stability fund via IMF - source
(Recasts, adds comment, updates prices)
NEW YORK, Dec 1 (Reuters) - The euro rebounded on
Wednesday, snapping a three-day decline, on speculation the
European Central Bank may take bold steps to ease the region's
debt crisis at a meeting on Thursday.
The euro zone single currency remained vulnerable, however,
given persistent fears about Europe's fiscal problems although
an apparent U.S. pledge on further International Monetary Fund
support pushed the euro to session highs at $1.3183 on
electronic trading platform EBS. For news on the U.S. backing
see [].
A U.S. Treasury Department spokesman said on Wednesday that
the United States is not discussing an extra commitment of
funds for a European stabilization fund right now.
[]
The euro traded in a two-cent range from high to low ahead
of Thursday's ECB meeting. The ECB is expected to keep interest
rates unchanged and possibly announce an extension of crisis
support measures beyond their scheduled expiration in
mid-January. []
Some analysts also expect the ECB to keep its three-month
liquidity operations unlimited to help banks struggling for
cash.
Still some market participants think the ECB could
disappoint the market given the well-publicized conflict within
the bank about buying bonds. That could prompt a resumption of
the euro's sell-off in fairly short order, analysts said.
"I personally think the market will be disappointed
tomorrow because the lack of a consensus within the ECB about
bond purchases will cause it to deliver less than what the
market is hoping for," said Aston Chan, portfolio manager at
GLC, a $1.2 billion London-based global macro hedge fund.
Chan added that the euro zone crisis has morphed into a
political problem given Germany's doubts about funding more
bailouts. Germany is the euro zone's largest economy and its de
facto lender of last resort.
In mid-afternoon New York trading, the euro <EUR=EBS> was
up 1.1 percent at $1.3117, pulling away from Tuesday's
2-1/2-month low of $1.2969 but off the day's highs at $1.3183.
The euro/dollar moved back above its 200-day simple moving
average at the peak after closing below that measure on Monday
and Tuesday.
A slight narrowing of yield premiums of government debt in
Portugal, Spain, and Italy over safe-haven German bonds also
supported the euro, as did a rise in European stocks and a
decline in the costs of periphery credit default swaps.
Relief that the Portuguese auction went well helped euro
bulls counter offers at the $1.3090-$1.3100 area. For Portugal
bond auction see [].
EURO -- A SELL ON RALLIES
Depending on what the ECB announces on Thursday, traders
are still targeting $1.2794, a level representing the 61.8
percent retracement of the June to November rally. A breach of
that should bring the August lows around $1.2600 in sight.
"Tomorrow is just one of many bridges that need crossing
before we can properly value euro zone assets; as such the euro
ought to be sold on rallies," said Deutsche Bank in a note.
Investors also cautioned on reading too much into news the
United States would be ready to support the extension of the
European Financial Stability Facility via an extra commitment
of money from the International Monetary Fund.
The "show of support is nice but this is far too vague a
comment to get excited about," said GLC's Chan. "Can the U.S.
help another country given its own deficit problems? How would
that go down with the voters?"
Analysts and traders said the euro's 9 percent fall from
its Nov. 4 high of $1.4283 to Tuesday's low left many feeling
it was a good time to take profits on short euros.
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.
GLC's Chan said his firm has placed the euro's fair market
valuation in the low $1.20s. "Although the euro has come down a
lot since that high in November, the peripheral widening of
credit spreads has actually made the euro more expensive."
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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
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(Reporting by Nick Olivari and Gertrude Chavez-Dreyfuss;
Editing by James Dalgleish)
