FOREX-Euro bounces on sovereign buys; debt woes linger

* East-European and Latam demand boost euro in thin trade

* Euro zone debt concerns cloud outlook

* Investors await Fed meeting, EU summit

(Adds detail, updates prices)

By Naomi Tajitsu

LONDON, Dec 13 (BestGrowthStock) – The euro trimmed losses against
the dollar on Monday, helped by East-European and Latin-American
demand but hampered by uncertainty about how the euro zone would
deal with its debt problems.

Trading volumes were reduced by the approach of the
year-end, while few investors were willing to take on big
positions before a Federal Reserve meeting this week and a
European Union summit on Thursday and Friday.

Further selling in Treasuries pushed the benchmark 10-year
U.S. yield to a six-month high, supporting the dollar on the
view that rising yields would make U.S. assets more attractive.

Speculation remains high that Portugal and others may follow
Ireland and Greece in seeking a bailout and European leaders are
expected to agree to tweak the EU treaty, paving the way to
create the “European Stability Mechanism” (ESM) from 2013, when
the current temporary rescue mechanism expires.

Off the agenda is the controversial topic of joint euro zone
bonds, supported by some member states while opposed by many
officials in Germany, the bloc’s dominant economy.

Stephen Gallo, head of markets analysis at Schneider Foreign
Exchange, said the euro was unlikely to change its general
downward trend.

“The market is still poised to favour the dollar,” he said.

“Speculative and leveraged money is still more inclined to
be short of euros and they will stay this way through December
and the first quarter of next year.”

Speculators trimmed short positions against the dollar last
week but more than doubled their bets against the euro,
according to data from the Commodity Futures Trading Commission,
signalling growing bearishness on the currency. [IMM/FX]

Some analysts said a quick decision on the ESM may provide a
boost to the euro as it would remove at least one layer of
uncertainty about the stability of the euro zone.

Fed officials meeting on Tuesday are expected to assess its
second round of quantitative easing announced in November, the
prospect of which dragged the dollar lower in September and
October.

But they are not expected to signal any shift away from
their intention to buy $600 billion in government debt, which is
seen limiting any significant dollar upside. [ID:nN08167483]

The euro (EUR=: ) rose 0.3 percent to $1.3282, having hit a
session low of $1.3182. Traders said Russian and Latin-American
demand had helped it to bounce into positive territory, while
next resistance was the 20-day moving average at $1.3336.

U.S. YIELDS

The dollar index (Read more about the global trade. ), which tracks its movements against a
currency basket, was down 0.2 percent at 79.880, while the U.S.
currency trimmed earlier gains to stand unchanged at 83.95 yen
(JPY=: ).

The dollar has been helped by a rise in Treasury yields
which climbed as high as 3.39 percent (US10YT=RR: ) after a U.S.
proposal to extend Bush era tax cuts. This is seen helping the
economy even as it raises issues about mounting U.S. deficits.

Analysts said weekly data on bond purchases by the European
Central Bank later in the day would offer clues on how much the
central bank has been supporting the bond markets of fiscally
weak euro zone countries.

“If the ECB data shows heavy bond-buying it would mean that
the compression in the peripheral yield spreads has not been a
sign that markets are willing to take on the risk of buying
bonds of weaker euro zone countries,” said Ulrich Leuchtmann,
currency strategist at Commerzbank in Frankfurt.
(Additional reporting by Neal Armstrong, editing by Patrick
Graham)

FOREX-Euro bounces on sovereign buys; debt woes linger