* Euro retreats from four-month high vs dollar
* CHF stumbles, lower oil prices trim safe-haven demand
* Analysts see room for short-term euro correction
(Adds comment, updates throughout)
By Naomi Tajitsu
LONDON, March 8 (Reuters) - The euro slipped versus the
dollar on Tuesday, pausing from a rally spurred by expectations
of a euro zone interest rate rise and raising the possibility of
a downward correction on concerns about euro zone debt problems.
An early slide in oil prices also encouraged investors to
pare back long positions in the Swiss franc -- which has gained
broadly from safe haven buying throughout the political uprising
in Libya.
The dollar jumped as much as 1 percent against the Swiss
franc <CHF=> while the euro lost steam after rallying to a
four-month high above $1.40 on expectations the European Central
Bank may raise interest rates next month. Near-term support is
seen at $1.3862, the previous three-month peak hit in early
February.
"As oil has come off people have squared some of their
positions and now we could see the euro continue to edge a bit
lower," said Adrian Schmidt, currency strategist at Lloyds.
With a euro zone rate rise in April largely priced in and
positioning data showing currency speculators have ramped up
their long euro positions, some in the market say the euro is
ripe for a short-term correction. []
However, traders said buying by sovereign accounts helped to
cap the euro's losses, while options expiries due at 1500 GMT,
including at $1.3900, $1.3990 and $1.4000, may keep it hemmed
within a range until then.
The euro <EUR=> fell 0.4 percent to $1.3905, extending a
retreat from a four-month high around $1.4036 hit on Monday.
Traders said stop-loss orders were triggered on the break of
$1.3940 and $1.3925, with more reported at $1.3885.
"We're seeing continued EUR/USD selling from the real money
community. It feels like the market wants to target
1.3880-1.3850," a London-based trader said.
Following a break of the $1.3862 February peak, the next
technical level was $1.3830, the low hit on Thursday before ECB
President Jean-Claude Trichet's hawkish comments at a news
conference after a policy meeting. Below there, the euro could
be heading towards $1.35.
Euro zone countries are ironing out measures to resolve the
region's debt crisis in time for a European Union summit on
March 24-25. They will meet at a preliminary summit on Friday
and any sign leaders are struggling to reach a consensus on a
debt rescue fund could trigger more profit taking in the euro.
"We have constructive expectations for reform of the EU
financial stability fund. If those aren't realised, we could see
negativity on the euro in the short term," said Carl Hammer,
currency strategist at SEB in Stockholm.
Analysts at Credit Agricole said a lack of consensus later
this month could trigger selling in the euro. It expects the
single currency to trade at $1.27 by May.
SWISSIE STRUGGLES
Oil prices <LCOc1> stabilised on Tuesday after Kuwait's oil
minister said OPEC was in talks to boost oil production,
although concerns remained about possible further disruptions in
oil supplies due to unrest in the Middle East and North Africa.
Analysts said this triggered selling in the Swiss franc,
with traders also citing franc selling by Middle Eastern names.
The dollar jumped as much as 1 percent against the Swiss
franc to 0.9354 francs, before pulling back to 0.9326 by 1236
GMT. The euro <EURCHF=> traded at 1.2969 francs, having hit a
two-week high of 1.3040 francs.
"There's been stabilisation of oil prices ... so there's a
backing off in risk aversion related to Middle East tension,"
said Adam Meyers, senior currency strategist at Credit Agricole.
"That backing off has caused the Swiss franc to slide."
A weaker franc and euro helped prod the dollar <.DXY> up 0.4
percent against a currency basket to 76.779. The index hovered
above 76.40, where key trendline support dating back to March
2008 lay.
(Additional reporting by Jessica Mortimer; Editing by Susan
Fenton)
