FOREX-Euro rebounds on China comments, gains seen fading

* Moody’s says may downgrade Portugal by one or two notches

* China supports Europe’s efforts to tackle debt problems

* Euro rebounds vs dollar, but hits record low vs franc
(Adds quote, updates prices, changes byline, dateline,
previous LONDON)

By Wanfeng Zhou

NEW YORK, Dec 21 (BestGrowthStock) – The euro rose on Tuesday after
China urged that tough talk from European leaders on the debt
crisis be backed up with action, but the gains were likely to
be short-lived amid fears of more ratings downgrades.

Analysts still expect the euro to gradually slide toward
$1.30 in the coming days. A significant decline below that
level appeared unlikely, they added, as liquidity thins and
traders close out positions ahead of year-end.

China’s Vice Premier Wang Qishan said Beijing, which has
invested an undisclosed portion of its $2.65 trillion reserves
in the euro, had played its part to ease Europe’s plight and
held out hope that a turning point was near. The comments
triggered a short-covering rally, which saw the euro push above
$1.32 and regain its 200-day moving average. For details, see
[ID:nTOE6BK01Q]

But the euro pared gains after Moody’s warned it may
downgrade debt-ridden Portugal’s A1 rating by one or two
notches after a review that will take up to three months,
reinforcing worries the debt crisis would persist well into
2011. [ID:nLDE6BK0HV]

“We’re still bearish on the euro despite the Chinese
comments,” said John Doyle, foreign exchange strategist at
Tempus Consulting in Washington. “The euro did retrace some of
its recent losses, but very marginally.”

“There’s a possibility that it pushes lower towards the
$1.30 level, probably no lower than that,” he said.

In early New York trading, the euro rose 0.3 percent at
$1.3159, extending a rebound from Monday’s trough of $1.3094,
its lowest since Dec. 2. It earlier rose as high as $1.3202
(EUR=EBS: ) on trading platform EBS.

In a positive sign, the currency has managed to crawl back
above its 200-day moving average, now at $1.3099, after
breaking below it on Monday. But analysts said sentiment
remained bearish on fears the debt crisis that has engulfed
Greece and Ireland could put Portugal and Spain under more
pressure early next year.

Spain sold 3.88 billion euros in treasury bills relatively
easily Tuesday in its last funding exercise of the year, but
analysts said worries about the ability of indebted euro zone
countries to service their debt will likely persist into 2011.
[ID:nEAP000941]

“It seems clear that from January, the debt problems will
still be very much there. These countries need to raise a lot
of money early next year,” said Beat Siegenthaler, currency
analyst at UBS in Zurich.

The single currency fell to a fresh lifetime low of 1.2597
Swiss francs (EURCHF=EBS: ) on EBS as euro zone concerns enhanced
the safe-haven status of the franc.

“Many investors are using euro/Swiss as a gauge for the
concerns about the problems in the euro zone periphery.
Sovereign risk is still weighing on the euro into year-end,”
said Valentin Marinov, currency strategist at CitiFX.

“At some point the (Swiss National Bank) may have to resort
to more decisive measures to counter any further decline in
euro/Swiss. But we may have to see further deterioration in the
Swiss fundamentals before this can happen,” Marinov said.

The dollar was down 0.1 percent at 83.62 yen (JPY=EBS: ),
with strong support seen around 82.80 yen, its low from last
week. The Bank of Japan kept monetary policy steady on Tuesday,
as expected. [ID:nTKZ006700]

The Aussie dollar was up 0.4 percent versus the U.S. dollar
at $0.9973 (AUD=D4: ), helped by an increase in risk appetite as
stocks and oil prices advanced. The Reserve Bank of Australia
confirmed it was in no hurry to raise rates.
(Additional reporting by Neal Armstrong in London; editing by
Jeffrey Benkoe)

FOREX-Euro rebounds on China comments, gains seen fading