FOREX-Euro soars vs dollar after Trichet, more gains seen

                                
 * Euro rises most versus dollar since July 2010
                                
 * Goldman Sachs goes long euro/dollar, targets $1.37
                                
 * Successful debt auctions help ease debt concern
                                
 * ECB's Trichet sees short-term inflationary pressures
 (Updates prices, adds comment)
                                
 By Wanfeng Zhou
                                
 NEW YORK, Jan 13 (Reuters) - The euro notched its biggest
rise against the dollar in more than six months on Thursday
following solid European debt auctions and after the head of
the European Central Bank cited risks of short-term inflation
pressures.
                                
 The ECB president, Jean-Claude Trichet, at a news
conference after the bank's Governing Council kept interest
rates at a record low 1 percent, said there is "evidence of
short-term upward pressure on overall inflation, mainly owing
to energy prices."
                                
 Although Trichet said that price stability was not under
threat, his remarks drove expectations that the ECB could raise
interest rates, helping to spark a round of short-covering on
the euro. See [ID:nLDE70C0KF]
                                
 The euro climbed more than 1.5 percent to near $1.34,
extending its sharp rebound this week. The euro was on track
for its best weekly performance since March 2009. Analysts
cautioned, however, the euro's downtrend is far from over.
                                
 "Trichet's frank acceptance of the nascent signs of
inflation in the region and his pledge that the bank will 'do
what is necessary' to control price pressures helped fuel a
vicious short-covering rally in euro/dollar," said Boris
Schlossberg, director of currency research at GFT in New York.
                                
 And strong demand at Spain's bond auction, one day after a
solid Portuguese debt sale, helped ease pressure on peripheral
bond markets. Analysts cautioned, however, that the sales
represented a very small percentage of supply from those
countries this year.
                                
 "We can make another run probably to just above $1.34,
after which I would look to fade the move," said Paresh
Upadhyaya, head of Americas G10 FX Strategy at BofA Merrill
Lynch Global Research in New York. "From a longer-term
perspective, the factors that are at play are euro negative.
Funding concerns will continue to weigh on the euro in the
first quarter."
                                
 The euro <EUR=EBS> climbed as high as $1.3376 on trading
platform EBS, almost 3 cents above the day's low at $1.3088. It
last traded up 1.7 percent at $1.336, on pace for its biggest
one-day gain since July.
                                
 Traders cited steady buying from Asian central banks and
demand from momentum players, options players and investment
funds.
                                
 GOLDMAN GOES LONG EURO
                                
 Goldman Sachs on Thursday recommended going long euro
against the dollar, targeting $1.37, saying European sovereign
debt tensions will ultimately ease. See [ID:nN13285674]
                                
 "Our view has long been that European sovereign tensions
will ultimately abate on a combination of better fiscal
coordination, support from the strong euro zone countries for
the periphery, solid growth in the euro zone as a whole and
signs of reform success in the periphery," the firm said in a
research note.
                                
 Analysts said the euro may see some support on speculation
that a solution to the debt crisis may come soon. Top European
Union officials are pushing for the bloc to increase the size
and scope of the 440 billion euro ($574 billion) rescue fund.
                                
 German Finance Minister Wolfgang Schaeuble said on
Wednesday that euro zone countries are working on a
"comprehensive package," which may be agreed by February or
March, to solve the crisis. [ID:nLDE70B2BE]
                                
 But Raghav Subbarao, currency strategist at Barclays
Capital, said in the medium term there are still concerns about
how debt problems will be resolved.
                                
 He said Portugal's snowballing debt-financing costs will
ultimately force Lisbon to ask for a bailout, while Spain faces
a hefty rollover of existing debt in April. Still, a bailout
for Madrid was unlikely, Subbarao said.
                                
 The euro climbed to a one-month high of 1.2885 Swiss francs
<EURCHF=EBS> ahead of an emergency meeting of Swiss unions and
industry representatives, with the subject expected to be the
record-strong Swiss currency.
                                
 The dollar fell 0.3 percent to 82.73 yen <JPY=> after U.S.
jobless claims jumped to their highest level since October
dented optimism about the U.S. economy, though analysts
cautioned against reading too much into the data. See
[ID:nN13271305]
 (Editing by Leslie Adler)