FOREX-Euro consolidates but upside seen limited

* Euro down 0.3 pct at $1.2321 (EUR=: )

* Extreme risk aversion eases as equities rebound

* Concerns about tight dollar funding weigh

* U.S. Treasury Secretary Geithner in Europe

(Releads, adds quote, updates prices)

By Tamawa Desai

LONDON, May 26 (BestGrowthStock) – The euro slipped on Wednesday but
was off near four-year lows hit against the dollar the previous
day as equities rebounded, although sentiment remained shaky for
the single currency.

The euro was also dented by lacklustre demand at a German
debt auction [ID:nTAR001747]. A separate auction of Portuguese
government paper that saw robust demand [ID:nLIS002381] failed
to bolster the single currency.

Concerns about tighter dollar funding conditions, with
three-month dollar interbank rates hitting a fresh 10-month high
on Wednesday, also weighed on the euro.

As extreme risk aversion eased, European shares (.FTEU3: )
rallied 2 percent and U.S. stock futures (SPv1: ) rose 0.8 percent
after Wall Street staged a late-day rally the previous day.

By 1113 GMT, the euro (EUR=: ) was 0.3 percent lower on the
day to $1.2321. It recovered from a low of $1.2172 on Tuesday
when investors pulled back sharply from riskier assets. The euro
hit a trough of $1.2143 last week, its lowest since April 2006.

“The market has been very short and maybe it’s time for the
market to take a breather… but tentative is a good way to
describe the rebound,” said Geoffrey Yu, currency strategist at
UBS.

Nomura currency strategist Ned Rumpeltin said the market was
in “consolidation mode,” and position adjustments may drive the
currency as high as $1.26 before it resumes its downtrend
towards $1.20.

Earlier, the euro suffered after U.S. Federal Reserve
Chairman Ben Bernanke said the U.S central bank’s dollar funding
facility was unlikely last forever.

Speaking in Tokyo, Bernanke said dollar swap lines, which
were reinstated as a Greek debt crisis escalated, played an
important role in stabilising markets, but that the Fed did not
want to provide a permanent service. [ID:nTOE64P01H]

Meanwhile, the Wall Street Journal reported on Tuesday the
Fed could cut the rate it charges the European Central Bank for
dollar swaps to spur the flow of dollars to banks in Europe if
strains from the European debt crisis increase. [ID:nN25163986]

U.S. Treasury Secretary Timothy Geithner will meet his new
UK counterpart George Osborne and Bank of England Governor
Mervyn King in London later on Wednesday, before travelling to
Frankfurt for a dinner meeting with European Central Bank
President Jean-Claude Trichet.

Geithner is expected to discuss the debt crisis in Europe,
which has led to global market turmoil in the past few weeks.

The dollar index (Read more about the global trade. ), which tracks the performance of the
greenback versus a basket of six other major currencies, was
down 0.2 percent at 86.577 (.DXY: ).

Against the yen, the euro was down 0.3 percent at 111.27 yen
(EURJPY=R: ). On Tuesday, it tumbled to 108.83 yen on trading
platform EBS, its lowest since November 2001.

The dollar was little changed against the yen at 90.27 yen
(JPY=: ).

Growth-linked currencies such as the Australian and New
Zealand dollars also erased hefty losses seen the previous day.

Stock Market Research Tools

(Additional reporting by Naomi Tajitsu; editing by Nigel
Stephenson)

FOREX-Euro consolidates but upside seen limited