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Euro firms in advance of ECB meeting

Tuesday, September 04 07:16:40

The euro pushed higher against the dollar today, nearing a two-month high hit last week, supported by hopes the European Central Bank will soon unveil details of a plan to tackle the region's debt crisis. The currency rose 0.2 percent to $1.2618, hovering close to a high of $1.26378 seen last Friday on trading platform EBS, its strongest level since early July. Traders said the paring back of bearish bets against the euro probably helped bolster the single currency, and there was also talk of euro buying by Asian players as well as euro buying against the yen by Japanese players.

Helping support the euro were expectations that the ECB will announce, after its policy meeting on Thursday, details of a long awaited debt-buying scheme to help ease funding pressures for stressed states. Those hopes were boosted on Monday by reports ECB President Mario Draghi said purchases of sovereign bonds of up to three years maturity by the ECB did not constitute state aid. With expectations running high ahead of Thursday's ECB meeting, analysts said the euro could sag if there is any disappointment. The euro's downside against the dollar, however, could be limited in the near term, with the greenback likely to be weighed down by market speculation that the U.S. Federal Reserve might decide to launch another bond buying programme, or quantitative easing, as early as this month.

"I don't see a big drop in euro/dollar from here, given the anticipation ahead of the Fed meeting," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong. Even if the ECB fails to live up to expectations and the euro were to come under pressure, its drop may be limited to levels just under the $1.25 level in the near term, he added. The euro touched a two-month high against the Australian dollar at A$1.2328 at one point, and rose 0.4 percent against the yen to 98.91 yen.

Japanese importers were spotted buying the dollar against the yen, helping the dollar rise 0.2 percent to 78.39 yen . The Australian dollar edged higher on position squaring after Australia's central bank kept interest rates unchanged at 3.5 percent as widely expected. The Australian dollar rose 0.4 percent to $1.0283, pulling up from a low of $1.0224 hit earlier today, its lowest level in nearly six weeks. ( C) Reuters