* Euro rises in relief rally after Portugal auction
* Spain, Italy debt auction, ECB on Thursday
* Markets hopeful of boost to euro zone lending fund
(Adds quote, updates prices)
NEW YORK, Jan 12 (Reuters) - The euro rose against the
dollar for a third straight day on Wednesday though gains were
still seen as temporary after a Portuguese debt sale failed to
stem fears over the funding prospects of peripheral euro zone
countries.
Rising risk appetite boosted the euro, which climbed above
$1.31 and broke above its 200-day moving average at $1.3071 on
trading platform EBS after a 1.7 percent advance over three
days.
Lisbon's debt auction saw healthy demand, with the average
yield at the 10-year sale off, compared with a previous one in
November, though 3-year bonds were sold at a significantly
higher yield. For details see [].
"Markets are far from convinced that the crisis has begun,
let alone ended," said Alan Wilde, head of fixed-income and
currency at Baring Asset Management in London. Baring Asset
Management oversees $50 billion in assets.
"Temporarily, the ECB has steadied markets using some
judicious buying of sovereigns with the widest spreads, and the
successful Portuguese auctions have resulted in a lift for the
euro," said Wilde.
But analysts said the auction results would do little to
change the view that the government in Lisbon will continue to
struggle and may turn to the European Union and International
Monetary Fund for a bailout.
"If we look at the 2014 issue, the yield was over 100 basis
points higher than the last auction, which is not a good sign
for Portugal's funding costs going forward," said Ronald
Simpson, director of currency research at Action Economics in
Tampa, Florida. "It keeps the door open (because) at some point
they're going to need to formally ask for assistance."
Attention now turns to Spain and Italy, which will sell
debt in auctions on Thursday that will also be watched for
signs of contagion. Analysts expect the sales to go without a
major hitch, but at elevated costs.
The euro <EUR=EBS> last traded 1.2 percent higher at
$1.3133 on Wednesday, after rising as high as $1.3138 on EBS.
At the session peak, the euro traded at the 50 percent
Fibonacci retracement of the move from the Jan. 4 peak to the
Jan. 10 low.
Analysts said further euro buying probably would not take
the currency much further than $1.3150 in the near term.
Near-term support lies at about $1.2794, the 61.8 percent
Fibonacci retracement of its rally from June to November.
But a move above the 200-day SMA is seen as a first step
toward improving sentiment toward the currency. The euro-dollar
has now tested the 200-day simple moving average three times
since Nov. 29, according to EBS data.
If it can hold gains above that level, technical analysts
will view it as long-term support. Conversely if it falls below
and continues to fall, that level will become long-term
resistance.
RETESTING 4-MONTH LOW
Also bolstering the euro were comments from euro zone
sources that finance ministers were likely to consider raising
the effective lending capacity of the currency bloc's rescue
fund next week in hopes of calming jittery markets.
[]
This follows Japan's promise to support an upcoming bond
sale by the fund, the European Financial Stability Facility.
Sentiment toward the euro zone single currency will remain
subdued on persistent concerns that the debt financing problems
affecting Portugal and Spain may spread, with some seeing
Belgium in the firing line due to political instability.
Traders still expect the euro to retest its four-month low
around $1.2860 set on Monday, with a break likely opening the
door to a fall toward $1.2645 and $1.2590 in the coming weeks.
The European Central Bank meets on Thursday and investors
will watch if the bank signals further steps to help ease
pressure on peripheral bonds.
Against the yen, the euro was up 0.9 percent at 108.93 yen
<EURJPY=EBS>. The dollar fell 0.3 percent to 82.96 yen <JPY=>.
The euro rose to a session high against the Swiss franc
after the Swiss National Bank Vice Chairman Thomas Jordan said
there are signs the Swiss economy will slow in 2011, though he
still saw growth of about 1.5 percent <EURCHF=EBS>. The dollar
fell to a session low against the franc <CHF=EBS>.
[].
(Reporting by Nick Olivari and Wanfeng Zhou; Additional
reporting by Steven C Johnson; Editing by James Dalgleish)
