* Euro loses steam after reaching one-week highs
* Spanish and Italian bond sales next major focus
* Hopes for more policy response to debt woes help euro
* Aussie soft after disappointing jobs data
By Hideyuki Sano
TOKYO, Jan 13 (Reuters) - The euro slipped from one-week
highs on Thursday after short-covering triggered by Portugal's
successful debt auction the previous day ran its course and
traders looked to debt sales by Spain and Italy.
Portugal's fund raising in the bond market sent bears
scrambling to buy back the euro, pushing it above its 200-day
moving average, but many hurdles remain for the currency,
starting with bond sales by Spain and Italy later in the day.
Some analysts say hopes for further policy responses by the
euro zone to tackle the debt woes are helping the euro amid talk
of increasing rescue funds, but they caution it is too early to
bet that anything substantial will be agreed at a eurogroup
finance ministers meeting early next week.
"At best the euro could rise to around $1.33. But
fundamentally, the euro still has headline risks. Even if
investors' risk appetite grows, they have many other currencies
to buy," said Minoru Shioiri, manager of forex at Mitsubishi UFJ
Morgan Stanley Securities.
"The euro's downtrend will end only when there is a more
negative story on the dollar," he said.
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Multimedia coverage on Euro Zone Crisis page on Top News:
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Portuguese debt spreads: http://r.reuters.com/suf75r
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The euro slipped 0.24 percent on the day to $1.3100 <EUR=>, a
day after short-covering drove the currency as high as $1.3145,
well above its 200-day moving average of $1.3070 and Monday's
four-month low around $1.2860.
Resistance lurks at $1.3152 for euro/dollar, a 50 percent
retracement of the recent fall from around $1.3435 to $1.2870,
while the 200-day moving average will provide support.
Talk of Japanese investors' buying also helped to push the
euro above 109 yen <EURJPY=R> for the first time in a week. It
later slipped to 108.82 yen but remained above the four-month low
of 106.83 yen hit earlier in the week.
The currency's gains so far this week have been driven in
part by budding speculation that euro zone policy makers may be
inching closer to step up safety measures for the currency bloc's
troubled countries, said Keiji Matsumoto, a strategist at Nikko
Cordial Securities.
"Euro zone policy-makers are moving more pre-emptively these
days. To stop debt crisis contagion to Spain from Portugal, they
really need to enlarge their rescue funds. It seems they are
moving in that direction," Matsumoto said.
The European Commission and euro zone countries are
discussing changes in the size and scope of operations of the
European Financial Stability Facility, Economic and Monetary
Affairs Commissioner Olli Rehn said. []
A recent show of international support for the currency bloc,
even if symbolic, is also helping to reduce worries, with both
China and Japan providing help. [] []
German Chancellor Angela Merkel said on Wednesday a European
Union/International Monetary Fund bailout fund for heavily
indebted euro zone countries was sufficient for now, but that
Germany would be ready to do what was needed to support the euro
-- comments some market players took as a softening of her
opposition to the idea. []
Immediate attention now turns to debt auctions in Spain and
Italy, which will also be watched for signs of contagion.
Analysts expect the sales to go without a major hitch, but at
elevated costs and there is little change in the view that
Portugal will continue to struggle and will ultimately follow
Greece and Ireland in seeking aid from the EU and IMF.
"It remains to be seen whether one strong auction will be
enough to truly assuage fears over euro zone stability, but FX
options data shows many traders may have begun to bet on, and
hedge against, further euro strength," said David Rodriguez, a
strategist at DailyFX.
"It will be important to watch for similarly robust results
out of the Spanish and Italian debt auctions if the euro is to
continue higher against the safe-haven U.S. dollar."
All these developments left the dollar looking lacklustre.
The dollar index, which tracks the greenback's performance
against a basket of major currencies, inched up 0.2 percent on
the day to 80.19 after having lost about 1 percent this week.
The dollar moved sideways against the yen at 83.08 yen
<JPY=>, holding within the previous session's trading range.
The Aussie shed 0.2 percent to $0.9940 <AUD=D4> after a
surprisingly small rise in employment data, though strong
commodity prices and the currency's high interest rates limited
its losses.
(Additional reporting by Ian Chua in Sydney, Chikako Mogi in
Tokyo and Reuters FX analysts Krishna Kumar in Sydney, and Rick
Lloyd in Singapore; Editing by Michael Watson)
