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Euro rise halted by Spain jitters

Tuesday, September 18 09:31:29

The euro fell today, succumbing to profit taking after a rallying to four-month highs against the dollar and yen a day earlier, with a renewed rise in peripheral bond yields likely to weigh on sentiment. The yen ceded ground against the dollar on speculation the Bank of Japan might loosen policy after the U.S. Federal Reserve launched a fresh round of monetary stimulus last week. The euro stood at $1.3080, down 0.3 percent on the day, having hit $1.3173 hit on Monday, its highest since May 4.

Traders said option barriers at $1.3200 appeared safe for now, with bids from sovereign investors cited at $1.3080/90 and stop-loss orders below $1.3070. The euro has rallied about 9 percent from a two-year low of $1.2042 in July when investors were worried the currency bloc might be heading for a break-up as Spanish and Italian borrowing costs soared.

Two-year Spanish bond yields rose on Tuesday, up 4.8 basis points on the day at 3.45 percent. Optimism the European Central Bank's new bond buying scheme will help Madrid weather the debt crisis has helped lift the euro, though Spain's apparent reluctance to seek a bailout has worried investors, contributing to higher bond yields. "Unless we get this uncertainty out of the way, we expect the euro to face some resistance around its highs," said Adam Myers, senior currency strategist at Credit Agricole. ( C) Reuters