FOREX-Euro climbs as EU leaders meet; dollar falls

* Euro up but investors wary of euro zone debt

* EU summit not seen offering solution to debt crisis

* Spanish bond auction produces solid demand, higher yields

(Recasts, adds quote, details, updates prices, changes
dateline, previous LONDON)

NEW YORK, Dec 16 (BestGrowthStock) – The euro rose on Thursday as a
European Union summit to discuss the debt crisis got underway,
though investors cautioned the currency was vulnerable to a
sell-off on lingering euro zone peripheral debt concerns.

European leaders sought to paper over deep divisions on how
best to resolve the debt crisis ahead of their summit, but
Spain and Portugal came under renewed pressure to get their
finances in order. [ID:nLDE6BE29I]

While the summit statement is expected on Friday, investors
are looking for any comments that may be made separately by
those attending the meeting.

“If comments come out that show division among leaders,
that could really hurt the euro,” said Chuck Butler, president
of EverBank World Markets in St. Louis. “But if there is a
strong united front the euro could rebound.”

Euro zone policymakers are toying with ideas to fall back
on if moves to create a permanent European Stability Mechanism
for solving debt crises fail to calm markets. [ID:nLDE6BE1JV]

The euro was up 0.2 percent at $1.3238 (EUR=: ) after falling
more than 1 percent on Wednesday. Traders said bids from Asian
central banks were seen around $1.3200, and on the charts
support is seen around $1.3165, the low hit on Nov. 9.

Option expiries were being cited at $1.3200, $1.3250 and at
$1.3300. Traders said liquidity was showing signs of drying up
as the year end was approaching and this was likely to increase
the potential for sharp moves.

The euro hit the day’s highs after results from an auction
of Spanish 10-year and 15-year bonds on Thursday, a day after
ratings agency Moody’s said it could downgrade Spain’s rating.
The auction resulted in higher yields but solid bid-to-cover
ratios. [ID:nMDT009590]

“Spain is not in a situation where it would have trouble
servicing its debt, so the auction saw enough demand,” said
Lutz Karpowitz, senior currency strategist at Commerzbank in
Frankfurt. But others added the higher yields indicated
continued wariness about euro zone debt.

Euro zone graphic package:

More on euro zone debt: [ID:nLDE6T0MG]

Government debt yields for Spain, Portugal and Italy rose
after the Spanish bond auction, highlighting those concerns.


The dollar lost ground as the sharp spike in U.S. Treasury
yields paused on Thursday.

It had gained earlier this week as benchmark 10-year
Treasury yields rose, hitting seven-month highs at 3.565
percent and pushing the dollar to a three-month high against
the yen at 84.51 yen (JPY=: ) on Wednesday. On Thursday, the
dollar slipped back to 84.05 yen.

Yet investors cautioned that higher bond yields may work
against the dollar in the longer term.

“Who wants to own a Treasury as yields rise?” said
EverBank’s Butler. “It’s a short term blip for the dollar.”

U.S. economic data, including weekly jobless claims and
November housing starts, had little impact on trading.

While a further rise in U.S. bond yields was seen helping
the dollar for now, some market players noted a breakdown in
the dollar/yen’s correlation with U.S. bond yields and with
U.S.-Japan yield spreads.

“It’s too early to say with conviction, but it could be due
to an emergence of bearish factors, such as the U.S. fiscal
situation,” said Jane Foley, senior currency strategist at
(Reporting by Nick Olivari, additional reporting by Tamawa
Desai, Editing by Chizu Nomiyama)

FOREX-Euro climbs as EU leaders meet; dollar falls