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Euro holds steady in morning trading

Wednesday, October 03 12:56:04

The euro steadied against the dollar today, underpinned by the belief that Spain will eventually request financial aid, a move which would prompt the European Central Bank to buy Spanish bonds and boost the euro.

It remains uncertain when Spain will make the move, however, after Prime Minister Mariano Rajoy on Tuesday quashed speculation the country could apply for a bailout as soon as this weekend. The single currency was flat at $1.2924, staying well above the three-week low of $1.28035 hit on Monday and with the potential to test Tuesday's peak of $1.2968. "We expect Spain to apply for aid and relatively soon, within the next one to three weeks ... This will be a further relief for the euro but it's still not solving the underlying problems of the euro zone," said Richard Falkenhall, currency strategist at SEB in Stockholm.

"It's reasonable to see people cutting back on short euro positions, but it's hard to believe that medium to long-term investors would be setting long euro positions." He said a Spanish bailout request would push the euro above $1.30, perhaps towards $1.35 but not further. A euro zone purchasing managers' survey on services and retail sales data highlighted concerns about the region's very weak economy. The numbers did not dent the euro as they were slightly less bad than some in the market had feared. (C ) Reuters