FOREX-Euro slips, investors brace for EU summit

* Euro slips, cuts previous day’s rally as EU summit awaited

* Speculation swirls of fiscal assistance plan for Greece

* Greek plan may boost euro, but risk aversion remains

(Updates throughout; previous TOKYO)

By Naomi Tajitsu

LONDON, Feb 10 (BestGrowthStock) – The euro slipped on Wednesday,
relinquishing some gains made the previous day as the market
braced for a European Union summit, speculating that member
countries may help Greece tackle its fiscal problems.

Comments from a senior German coalition source that European
governments had agreed in principle to support heavily indebted
Greece had helped the euro to rally on Tuesday. [ID:nSGE61801C]

But the common European currency failed to make additional
headway as concerns about the fiscal positions of several euro
zone nations kept investors wary of taking on big positions in
before the meeting on Thursday.

Euro losses were limited as the government bond yield
spreads between Greece and Germany — considered by far the
safest of euro zone debt — continued to narrow, suggesting that
concerns about Greece may be fading slightly.

Analysts said the currency market wanted to see whether a
concrete plan for Greece would materialise at the summit, and
that the euro may benefit if periphery spreads contract more.

“The market will be very volatile, depending on if there is
a package and if so, what that will be and how the market thinks
it will impact the narrowing of spreads,” said Marcus Hettinger,
global currency strategist at Credit Suisse in Zurich.

“If the recent widening of the periphery spreads stops or if
they narrow, that should be positive for the euro given the
market is extremely short (on the currency).”

The euro has earned a slight reprieve this week after
enduring a pounding as ballooning debts not only in Athens but
also Portugal and Spain have highlighted the dismal financial
positions of some euro zone members, undermining stability in
the 16-nation bloc.

By 0821 GMT, the euro (EUR=: ) had slipped 0.2 percent on the
day to $1.3760, edging down from the day’s high of $1.3807,
according to Reuters data.

It had rallied as high as around $1.3840 on Tuesday,
climbing a full percent on the day to post its best daily
percentage gain since November 2009 and pulling further away
from an 8 1/2-month trough around $1.3580 hit last week.

Against the yen (EURJPY=R: ) it was down 0.1 percent at 123.46
yen as traders took a breather after pushing the euro up roughly
1.5 percent the previous day, its biggest one-day gain since
October 2009.

Some market participants questioned the wisdom of buying up
the euro at this stage, as aid for Greece could lead to similar
measures for the other struggling euro zone economies like Spain
and Portugal.

“This still means a burden to the region and possibly puts a
constraint on the ECB’s monetary policy and pace of withdrawal
of liquidity injection,” said a trader at a European bank in
Hong Kong. “Fundamentally, Europe will likely remain a laggard,
underperforming the U.S.”

High-yielding currencies including the Australian and New
Zealand dollars slipped, and the dollar was slightly higher
against a currency basket (.DXY: ) at 79.916 as investors remained
somewhat risk averse ahead of Thursday’s meeting.

The market also awaited comments by Federal Reserve Chairman
Ben Bernanke who is expected on Wednesday to outline the Fed’s
strategy for tightening. The prepared testimony will be released
at 1500 GMT, even though the congressional hearing has been
postponed.

Stock Market Analysis

(Additional reporting by Tokyo Forex Team; Editing by Ruth
Pitchford)

FOREX-Euro slips, investors brace for EU summit