FOREX-Euro supported after Spanish auction

* Euro holds gains vs dollar, hits 1-mth high vs CHF

* Support seen from speculation of euro zone debt measures

* Spain sees strong demand at debt auction

(Releads, updates throughout; previous TOKYO)

By Naomi Tajitsu

LONDON, Jan 13 (BestGrowthStock) – The euro hit a one-month high
against the Swiss franc and edged up versus the dollar on
Thursday as speculation that measures to tame the euro zone debt
crisis may be on their way prompted short covering.

The euro nudged up to the day’s high versus the dollar after
Spain attracted strong demand at an auction of five-year bonds.
Investors had been eyeing the sale to see if debt problems
plaguing Greece, Ireland and Portugal will spread to Madrid and
beyond.

The single currency added to gains made on Wednesday, when
solid demand at a Portuguese auction quelled some concerns about
the country’s snowballing financing costs, prompting a buy back
of euros after it hit a four-month low early this week.

Meanwhile, traders said jitters before an upcoming emergency
meeting of Swiss unions and industry and trade representatives
triggered selling in the Swiss franc against the euro, pushing
the euro (EURCHF=R: ) to 1.2837 francs, its highest since
mid-December.

Analysts said the euro was supported after German Finance
Minister Wolfgang Schaeuble said on Wednesday that euro zone
countries are working on a “comprehensive package” to solve the
bloc’s debt crisis, which could be agreed by February or March.
[ID:nLDE70B2BE]

“We’re wary of positioning for euro downside too
aggressively because there seems to be more news that Germany
and France are going to push through some emergency resolution
package,” said Geoffrey Yu, currency strategist at UBS.

“So the euro could rally going into this.”
The euro (EUR=: ) rose 0.2 percent on the day at $1.3170,
recovering from an early slide to $1.3089.

The single currency was supported by its 200-day moving
average of $1.3070 after it rose as high as $1.3145 on
Wednesday. The euro has recovered from a fall to around $1.2860
on Monday, its weakest since mid-September.

It also poked above $1.3152, the 50 percent retracement of
the recent fall from around $1.3435 to $1.2870.

Despite the euro’s rise this week, market participants say
the euro remains vulnerable to selling if euro zone debt
problems deteriorate further.

“At best the euro could rise to around $1.33. But
fundamentally, the euro still has headline risks. Even if
investors’ risk appetite grows, they have many other currencies
to buy,” said Minoru Shioiri, forex manager at Mitsubishi UFJ
Morgan Stanley Securities in Tokyo.

“The euro’s downtrend will end only when there is a more
negative story on the dollar,” he said.

The European Central Bank announces its monthly policy
decision later in the day, and President Jean-Claude Trichet
will speak to reporters at 1330 GMT. While no policy changes are
expected, focus will be on the central bank’s bond-buying
programme and its reaction to higher inflation. [ID:nLDE7091XI]

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Multimedia coverage on Euro Zone Crisis page on Top News:

http://r.reuters.com/hus75h

Portuguese debt spreads: http://r.reuters.com/suf75r

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SPAIN AUCTION

Spain’s offer of five-year bonds was met with strong demand
even as the paper came with an average yield of 4.542 percent,
higher than 3.576 percent at a previous sale. Expectations had
been for a yield of around 5 percent. [ID:nMDT009637]

However, the Spanish results are seen doing little to change
the view that Portugal will continue to struggle and will
ultimately follow Greece and Ireland in seeking aid from the EU
and IMF.

Support for the euro kept the dollar weak. The dollar index (Read more about the global trade. ),
which tracks the greenback’s performance against a basket of
major currencies, was little changed on the day at 79.98 after
having lost about 1 percent this week.

The dollar moved sideways against the yen at 82.98 yen
(JPY=: ), holding within the previous session’s trading range.

The Aussie was unchanged at $0.9966 (AUD=D4: ) after a
surprisingly small rise in employment data, though strong
commodity prices and the currency’s high interest rates limited
its losses.

(Editing by Toby Chopra)