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* U.S. dollar supported by upbeat economic data
* Euro slips but bolstered by central bank demand
* Portugal borrowing costs soar, Spain issuance on horizon
By Neal Armstrong
LONDON, Jan 5 (Reuters) - The dollar held firm on Wednesday,
bolstered by further evidence that the U.S. economic recovery is
becoming self-sustaining, though its gains against the euro were
slowed by central bank demand for the single currency.
A recent series of economic data has raised hopes for a
sustainable U.S. recovery and lent support to the dollar. The
latest such numbers on Tuesday showed new orders received by
U.S. factories rose unexpectedly in November.
"The underlying story is that the dollar does alright on
decent data, but with the Fed indicating in its minutes that
policy will stay easy, rates will go up elsewhere before they go
up in the U.S.," said Adrian Schmidt, currency strategist at
Lloyds Banking Group.
Latest minutes from the Federal Reserve's Open Market
Committee's discussion on monetary policy were released on
Tuesday, showing the Fed was content to stick with an easing
path. []
Market players said the dollar's rise and a drop in
commodities this week had been driven in part by position
unwinding, with investors trimming back some bets made before
year-end.
"The move over the past two weeks was somewhat exaggerated,
having taken place in thin liquidity. With liquidity coming back
on stream, the markets are now reassessing some of the moves,"
said Sue Trinh, strategist at RBC Capital Markets.
The dollar index, which measures the greenback's value
against major currencies, was up 0.4 percent at 79.755 <.DXY>.
The dollar was close to flat at 82.11 yen <JPY=>.
EURO DIPS
The euro dipped 0.6 percent to $1.3210 <EUR=> after stops
were triggered on the break of $1.3250. Traders reported demand
from major Asian sovereign accounts to buy the dip.
"Debt problems in the euro zone are well flagged now and the
euro is range-trading. There isn't much confidence in the euro
but clearly there are central bank buyers towards 1.30," said
Schmidt at Lloyds.
The euro made a brief dip below $1.30 at the end of November
before registering a strong bounce to around $1.3500. It has
held well within that range over recent weeks.
Traders said news the Swiss National Bank has stopped
accepting Irish government bonds as collateral in its money
market operations dented sentiment towards the euro.
[]
Portugal has come under increasing pressure from
international debt markets on concerns it may be forced to
follow Greece and Ireland and seek an EU/IMF bailout. Demand for
its Treasury bills was solid on Wednesday though yields
continued to rise. []
Market focus was shifting to Spanish issuance for 2011, the
first tranche of which comes up for auction next week.
"It's not out of the question that speculators could target
Spain in the same way they targeted Ireland," said Stephen
Gallo, head of Market Analysis at Schneider Foreign Exchange.
"I don't think ringfencing issues for Spain are priced in to
the euro/dollar rate at the moment. There's no catalyst for a
weaker euro yet but the negative cycle is building," he said.
The Australian dollar slipped 0.4 percent to $1.0010
<AUD=D4> after shedding 1.2 percent the previous day, when gold
<XAU=> and oil <CLc1> both fell more than 2 percent.
Traders said stop-loss selling weighed on the Australian
dollar on Wednesday. It has taken a hit this week as investors
fear that widespread floods in the country's northeast will hit
production of coal, the nation's biggest export.
A year-end rally in thin trade had driven the Aussie to a
28-year high around $1.0257 last Friday.
(Additional reporting by Masayuki Kitano in Singapore, Editing
by Catherine Evans)
