FOREX-Euro hits 5-mth high vs dollar after ECB tender

                                
 * Euro hits 5-month high vs dollar, buoyed by ECB tender
                                
 * Worries about more QE in U.S. offset Ireland concerns
                                
 * Dollar index hits 8-month low; month-end flows dominate
                                
 * Dollar index on track for biggest quarterly fall in 8 yrs
                                
 
                                
 (Updates prices, adds quote)
                                
 By Jessica Mortimer
                                
 LONDON, Sept 30 (Reuters) - The euro hit a five-month high 
against the dollar on Thursday, reversing earlier losses on
concerns about Irish fiscal and banking problems, after banks
borrowed less than expected at a European Central Bank tender.
                                
 Euro gains helped push the dollar index to an eight-month
low against a basket of currencies, while the yen rose broadly
on reported exporter demand on the last day of Japan's fiscal
half-year. This sparked concerns Japan may step in again to curb
gains in its currency.
                                
 In a day of heavy month- and quarter-end flows, investors
opted to buy back the euro after it fell earlier on Ireland
disclosing a worst case price tag of more than 50 billion euros
to bail out its troubled banks. [ID:nLDE68T045]
                                
 Analysts and traders said the market focus remained on the
prospect of further quantitative easing measures in the United
States and possibly in the UK. In contrast, the ECB appeared to
be on a gradual path towards removing policy stimulus.
                                
 Banks borrowed 29.4 billion euros of six-day ECB funds on
Thursday, ensuring a far bigger than expected drop in excess
liquidity as 225 billion euros of ECB loans expire, signalling a
healthier outlook for money markets. [ID:nLDE68T13O]
                                
 This pushed euro zone interest rate futures <0#FEI:> lower,
equating to an increase in rate expectations.
                                
 "The euro started going down on the Ireland news, but it did
not go far enough under $1.36 to be sustained," said Kit Juckes,
currency strategist at Societe Generale.
                                
 "If the ECB is even inclining towards an exit (from
ultra-easy monetary policy) then they do stand out as winners
when QE looks likely from the U.S., UK and possibly Japan."
                                
 At 1150 GMT, the euro was up 0.1 percent at $1.3635 <EUR=>,
having earlier pushed through a reported options barrier at
$1.3650 to hit a five-month high of $1.3676 on the EBS trading
platform. The euro has risen almost 12 percent versus the dollar
over the course of this quarter.
                                
 The dollar index <.DXY> was down 0.1 percent at 78.621,
having fallen to an eight-month low of 78.441. It has lost more
than 8 percent over the quarter, leaving it on track for its
biggest quarterly fall since the second quarter of 2002.
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 For a graphic on 2010 market returns, click
                                
 http://graphics.thomsonreuters.com/F/09/GLB_MKTQE.html
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 "There is no indication that the recent dollar slide has
come to an end and people are still happy to put on short dollar
positions," said Niels Christensen, currency strategist at
Nordea in Copenhagen.
                                
 Month-end flows benefiting the yen and sterling pushed the
single currency down 0.3 percent to 113.67 yen <EURJPY=R> and
down 0.5 percent to 85.84 pence <EURGBP=D4>.
                                
 Traders reported euro/sterling sales related to an annual
rebate Britain receives from the European Union.
                                
 
                                
 YEN INTERVENTION WORRIES
                                
 Against the yen, the dollar fell 0.4 percent to 83.37 yen
<JPY=>, taking it very close to a 15-year low of 82.87 hit on
trading platform EBS earlier this month before Japan intervened
and heightening worries they may step in again.
                                
 The Ministry of Finance said Japanese authorities sold
2.1249 trillion yen ($25.37 billion) in currency intervention in
the latest month to Sept. 28. [ID:nTOE68T08I]
                                
 "It's slightly lower than what the market was thinking, but
not hugely surprising given data from the BOJ had indicated as
such," said Derek Halpenny, European head of global currency
research at Bank of Tokyo-Mitsubishi UFJ in London.
                                
 "Going forward, we expect the Japanese authorities to come
in at some point. Japanese Prime Minister (Naoto) Kan has to
maintain credibility."
                                
 Japan's deputy finance minister Mitsuru Sakurai said the
government was ready to take decisive steps against yen rises.
[ID:nTKG006891] Traders said intervention wariness would rise if
the dollar fell below 83.00 yen.
                                
 (Graphic by Scott Barber)