FOREX-Euro rises vs dollar, but debt fears persist

* Moody’s 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)

By Wanfeng Zhou

NEW YORK, Dec 21 (BestGrowthStock) – The euro rose against the
dollar on Tuesday after supportive comments from China spurred
a bout of short-covering, but the gains were likely to be
short-lived amid fears of more ratings downgrades of indebted
euro zone economies.

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
helped 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]

“Near term, the euro will remain under pressure. There is
certainly good interest to want to sell euros on any rallies,”
said Dean Popplewell, chief strategist of FX brokerage OANDA in
Toronto.

“In the bigger picture of things, there’s no clarity from
European policymakers with regards to the contagion fears in
Europe and we can expect this to weigh on the euro for the
remainder of the year,” he added.

The euro rose 0.2 percent to $1.3140, rebounding from
Monday’s trough of $1.3094, its lowest since Dec. 2. It earlier
hit as high as $1.3202 (EUR=EBS: ) on trading platform EBS.

The euro has managed to crawl back above its 200-day moving
average, now at $1.3098 on EBS, 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 persist. [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 1.2560
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 83.69 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 Australian dollar was up 0.5 percent versus the U.S.
dollar at $0.9977 (AUD=D4: ), helped by an increase in risk
appetite as stocks advanced and tensions on the Korean
peninsula eased. The Reserve Bank of Australia confirmed it was
in no hurry to raise rates. [ID:nL3E6NL01F]
(Additional reporting by Neal Armstrong in London; Editing by
Chizu Nomiyama)

FOREX-Euro rises vs dollar, but debt fears persist