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Euro dips on ECB action scepticism

Wednesday, September 05 10:53:45

The euro fell today on scepticism among investors such as sovereign funds that steps by the European Central Bank to stem the debt crisis could fall short of market expectations.

But losses were likely to be limited as some still bet the ECB would announce on Thursday details of a bond-buying programme to lower Spanish and Italian borrowing costs.

The euro was down 0.4 percent at $1.2515. Its fall from a two-month high of $1.26378 hit on Friday on trading platform EBS highlighted growing investor caution.

In Asian trade, it fell through reported stop-loss orders at Tuesday's low of $1.2555, as well as at $1.2550, which was a 50 percent retracement of its recent rise from $1.2465 on Aug. 28 to Friday's high. More stops were said to lie below $1.2475.

"Many are concerned that the ECB may just give us bare bones while others are of the view that even if they give details to the plan, it would be a good time to sell the currency as the economic data from the region has been deteriorating," said Jane Foley, senior currency strategist at Rabobank.

"These factors have been sapping the euro and this will be the prevailing tone in the run-up to the ECB meeting tomorrow."

The euro has risen from a two-year low of $1.2042 in late July since ECB chief Mario Draghi pledged he would do everything to preserve the currency, suggesting possible intervention in bond markets to lower peripheral countries' borrowing costs.

He told European lawmakers on Monday that purchases of short-term sovereign bonds to help debt-burdened countries would not breach European Union rules, according to a recording obtained by Reuters.

Investors are keen to know the size of any bond purchases and the tenors that the ECB intends to buy. Some have said that unless it sets no limits on its bond purchases, investors could use the opportunity to sell to the ECB, threatening the success of the bond-buying plan.

That could also weigh on the euro.

"Some investors are wary that the euro's rally ahead of the ECB meeting will turn out to be, 'buy the rumour, sell the fact'," said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo. (C ) Reuters