FOREX-Euro firms on euro zone rate hike expectations
* Euro firmer as Trichet supports ECB rate hike expectations
* Euro supported above $1.40 but resistance at $1.4250
* Dollar/yen steady, offers seen around 82.00 yen
(Updates prices; changes byline, dateline; previous TOKYO)
LONDON, March 29 (Reuters) - The euro rose against the dollar on Tuesday after comments by the head of the European Central Bank reinforced expectations for a rate rise next month and kept the single currency in its recent range above $1.40.
The euro had dipped on Monday after hawkish U.S. policymaker comments lifted the dollar, but ECB President Jean-Claude Trichet's comments that inflation is "durably" above the ECB's target kept it above support at $1.40. [ID:nLDE72R20A]
The $1.40 support level is drawn from a trendline from the low below $1.30 hit in January, while the euro's 21-day moving average stands just above that level, at around $1.4006.
The currency stayed comfortably below last week's high of $1.4249, however, and options barrier resistance at $1.4250.
Traders cited support from sovereign bids around $1.4080 and more around $1.4050, but reported offers of $1.4130-5 and just above were expected to keep euro/dollar trapped within a range.
Investors continued to focus on the prospect of higher rates and shrugged off the euro zone debt crisis, despite rising concerns about Portugal's ability to finance itself as the country prepares for a snap election. [ID:nLDE72R1RI]
"Euro/dollar is trading at the moment on two factors -- interest rate differentials and the technical configuration," said Niels Christensen, currency strategist at Nordea in Copenhagen.
"The euro failed to break below $1.40 yesterday, and last week it disappointed on the upside, failing to test the November highs (at $1.4283), so it is likely to stay in a $1.40-$1.42 range".
He said trade is likely to be subdued heading into month-end and ahead of key U.S. non-farm payrolls data on Friday.
The euro EUR= was up 0.3 percent at $1.4130, comfortably above a low of $1.4021 hit on Monday. Traders said an options barrier at $1.4250 was expected to be heavily defended, but a break of this would lead to a test of the November high, which would mark its strongest since January 2010.
The euro also rose 0.4 percent against the yen EURJPY= to 115.63 yen, its highest level since Group of Seven central banks intervened jointly at Japan's request to curb appreciation in the yen following a devastating earthquake.
Reflecting rising rate hike expectations, key euro-priced interbank lending rates rose to a 22-month high on Monday with the level of excess liquidity in money markets falling. [ID:nLDE72R0W1]
The dollar was steady at 81.69 yen JPY=, with gains capped by reported offers ahead of 82.00 yen, traders said. They added there were stop loss orders above 82.00 yen and options expiries due at 81.00 and 82.00 yen which could also help keep it hemmed in a range.
A customer dealer for a major Japanese bank in Tokyo earlier reported a significant amount of dollar offers, mainly from Japanese exporters, at and above 82 yen -- the March 18 high hit after the coordinated G7 intervention.
He said the dollar is vulnerable to a fall towards 80.80 yen, though most traders and analysts believe falls will be limited due to fears of possible further intervention.
The dollar index .DXY, which tracks the U.S. currency's performance against a basket of major currencies, was down 0.2 percent on the day at 75.987.
"A recent rise in oil prices is also raising expectations that oil producers will diversify away from the dollar, which would also benefit the euro," said Masafumi Yamamoto, chief currency strategist at Barclays Capital. (Additional reporting by Natsuko Waki in Tokyo; Editing by Catherine Evans)
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