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Euro rises but Spanish jitters remain

Tuesday, October 02 12:26:51

The euro edged higher today, pulling away from recent three-week lows against the dollar on growing signs that Spain is ready to seek a bailout. But uncertainty over the timing of the request kept investors on edge with many selling the euro at higher levels.

Another risk factor is rating agency Moody's soon-to-be accounced review of Spain's rating, which could see it cut to junk status.

The growth-linked Australian dollar fell to a four-week trough against the U.S. currency and slid against the euro after the country's central bank cut interest rates by a quarter point and left the door open for more easing. Analysts said safe-haven currencies like the U.S. dollar and the yen would be in demand until Madrid asked for aid. But a bailout request - and expectations that would be followed by the European Central Bank buying Spanish government bonds to cut borrowing costs - would push the euro and riskier assets higher.

European officials told Reuters on Monday that Spain was ready to request a euro zone bailout for its public finances as early as next weekend, but Germany had signalled that it should hold off. "People are sitting on their hands and it's noticeable the euro has been in a process of steady reversal since the ECB's decision on the bond-buying programme," said Neil Mellor, currency strategist at Bank of New York Mellon.

"We're waiting for Spain to do something, judging by various headlines there's still a lot of backroom dealing going on."

The euro was 0.2 percent higher on the day at $1.2920, pulling away from Monday's low near $1.2804 on trading platform EBS, its lowest level in three weeks. Market players reported bids from Asian central banks at around $1.2880 with offers to sell at $1.2950, confining the currency to a range. (C ) Reuters