FOREX-Euro steady, Aussie gains after China reserve hike

                                
 * Euro steady; worries on Ireland, wider debt crisis weigh
                                
 * Aussie gains after China raises banks' reserve requirement
                                
 * Relief that China did not raise interest rates helps risk
                                
 
 (Updates prices, adds quote)
                                
 By Jessica Mortimer
                                
 LONDON, Dec 10 (Reuters) - The euro held steady against the
dollar on Friday while the Australian dollar staged a relief
rally after China increased the reserve requirement for banks
but kept interest rates on hold.
                                
 The Aussie -- which is most sensitive to monetary tightening
in China given Australia's close trading links with the country
-- dipped briefly after Beijing increased the reserve
requirement by 50 basis points. [ID:nTOE6B907U]
                                
 But it soon pushed back up, taking the euro and other
perceived higher risk currencies with it on relief that China
had not opted to raise interest rates as well given another jump
in Chinese exports last month. [ID:nL3E6NA0GA]
                                
 "In recent weeks people have been talking about the
possibility of a rate hike in China," said Niels Christensen,
currency strategist at Nordea in Copenhagen.
                                
 "Given they only announced a reserve requirement hike we are
seeing a bit of a relief rally as it has given a small boost to
risk appetite. This has especially helped the Aussie and the New
Zealand dollar."
                                
 The euro underperformed, however, holding up against the
dollar but falling against other currencies, including sterling
<EURGBP=D4> and the Swiss franc <EURCHF=> on lingering concerns
about peripheral euro zone debt.
                                
 The euro was 0.1 percent higher at $1.3253 <EUR=>, staying
above a low of $1.3164 on trading platform EBS on Thursday.
Traders cited option expiries at $1.3250 later in the session.
                                
 Sentiment towards the euro was shaky after Moody's said on
Thursday it may downgrade the ratings of some Portuguese banks.
[ID:nWNA6521] The announcement followed Fitch's earlier decision
to slash Ireland's rating by three notches. [ID:nLDE6B81AH]
                                
 Ireland's government will seek parliamentary approval for an
85-billion-euro IMF/EU rescue package next week, though there
were concerns about political infighting as the opposition
Labour Party pledged to vote against it. [ID:nLDE6B81XS]
                                
 Traders say no end is in sight for the debt crisis with
European leaders now clashing over the idea of joint euro zone
bonds. [ID:nLDE6B70R1] French President Nicolas Sarkozy met
German Chancellor Angela Merkel on Friday to prepare a joint
position for next week's EU summit. [ID:nLDE6B823X]
                                
 Merkel said on Friday there was no question of boosting a
euro zone financial safety net and reiterated her opposition to
the issue of joint euro bonds. [ID:nBAE003860]
                                
 "Currently the market appears reluctant to aggressively
short the euro suggesting that the politicians have a lot to
live up to next week," said Jane Foley, senior currency
strategist at Rabobank.
                                
 
                                
 AUSSIE GAINS
                                
 The Australian dollar rose 0.4 percent to $0.9883 <AUD=D4>,
recovering after a brief dip to around $0.9845 after China's
announcement. Analysts warned, however, that a China rate rise
was still possible as the country battles to stem rising
inflationary pressures. 
                                
 "Everyone is on watch for China, especially ahead of the CPI
figures this weekend," said Jeremy Stretch, currency strategist
at CIBC. "Rumours are that CPI could be north of 5 percent; if
that's the case it will underline the scale of the inflation
problem. I wouldn't want to go home too long on the Aussie."
                                
 The dollar <.DXY> index, which tracks the greenback's
performance against a basket of major currencies, dipped 0.2
percent to 79.936, struggling to break through the 80.00-81.50
barrier that capped its November rally.
                                
 The dollar index was off a high of 80.405 reached earlier
this week as healthy demand at a 30-year auction of U.S.
Treasuries on Thursday pushed U.S. yields down.
                                
 Against the Japanese currency, the greenback was down 0.2
percent at 83.50 yen <JPY=> with stops lined up below 83 yen.
                                
 The dollar's repeated failure since late last month to take
out resistance around 84.40 yen is encouraging many traders to
take profits near that level, leading to expectations that its
83.50-84.50 range will persist for now.
 (Additional reporting by Naomi Tajitsu and Anirban Nag; Editing
by Susan Fenton)