FOREX-Euro/dollar recovers on risk, gains limited

* Euro/dollar recovers from 6 1/2-month low as stocks rise

* Euro gains capped, Greece, Portugal debt concerns mount

* Dollar supported after FOMC meet, rate rise seen this year

(Adds comment, details, updates throughout; previous TOKYO)

By Naomi Tajitsu

LONDON, Jan 28 (BestGrowthStock) – The euro rose on Thursday,
recovering from a 6 1/2-month low against the dollar after U.S.
President Barack Obama said he did not want to punish U.S.
banks, whetting risk appetite and boosting stocks.

Despite its recovery, the single currency’s gains were
capped as investors remained wary on concerns about some euro
zone countries’ fiscal health.

The dollar slipped, relinquishing gains made against the
euro and a currency basket after the Federal Reserve struck a
note of cautious optimism about the U.S. economy on Tuesday
after holding interest rates at essentially zero, as expected.

Kansas City Fed President Thomas Hoenig had argued to cut
the Fed’s pledge to keep rates low “for an extended period” from
the policy statement, adding to the market’s view that rates may
start to rise later in the year. [ID:nN27180815]

In his State of the Union address on Wednesday, Obama
pledged to double exports in five years to help create jobs,
prompting some investors to think the U.S. government may seek a
weaker dollar to promote exports. [ID:nWAT014079] [nN26136373]

Analysts said some investors bought back euros and other
higher-risk currencies which were sold last week when Obama’s
pledge to crack down on U.S. banks’ risk-taking triggered risk
aversion.

But they warned that the euro was heading for more losses
due to escalating concerns about the grim fiscal conditions in
some euro zone states, including Greece and Portugal.

“Sentiment definitely remains negative for the euro because
of the Greece problem,” said Lutz Karpowitz, currency strategist
at Commerzbank in Frankfurt.

“I thought the Greece story would eventually die down, but
that doesn’t seem to be the cause, and there are more countries
in the pipeline (who are facing debt problems).”

Greek government bonds yields have shot up on concerns that
Athens may face serious problems paying back its debts. As a
result, the 10-year Greek/Bund spread on Wednesday blew out to
its widest since Greece joined the euro in 2001.

Analysts said markets were looking for other countries whose
fiscal positions may also be vulnerable.

Underlining this view, ratings agency S&P said on Thursday
concerns over Portugal’s public finances had not abated after
its budget this week. [ID:nLDE60R0GZ]

BERNANKE VOTE AWAITED

By 0851 GMT, the euro (EUR=: ) traded slightly higher on the
day at $1.4030, boosted by a 1.3 percent rise in European shares
(.FTEU3: ). This helped the single European currency pull away
from $1.3930, its weakest since mid-July hit in Asian trade.

Traders said the euro hit that trough after it broke under
its 55-week moving average around $1.3980, but a rise in global
share prices had prompted a turnaround in the currency.

The dollar was flat against a currency basket (.DXY: ),
retreating from a 5 1/2-month high of 79.066 hit in early trade.

Higher risk demand pushed the higher-yielding Australian and
New Zealand dollars each nearly 1 percent higher on the day
against their U.S. counterpart.

Despite the dollar’s broad losses, it rose 0.4 percent to
90.43 yen as the Japanese currency also suffered from higher
risk demand. As a result, the Australian and New Zealand dollars
each rose roughly 1.5 percent versus the yen.

Investors awaited a U.S. Senate vote on Fed Chairman Ben
Bernanke’s nomination for a second term later in the day.
[ID:nN27143856]

Investing Analysis

(Editing by Nigel Stephenson)

FOREX-Euro/dollar recovers on risk, gains limited