Euro steady, market uncertain on ECB outcome

A picture illustration shows a 100 Dollar banknote laying on various denomination euro banknotes, taken in Warsaw, January 13, 2011.

SYDNEY (Reuters) - The euro was unusually steady against the greenback in early Asia on Thursday as uncertainty gripped markets ahead of an ECB meeting which could see rates cut or the rebirth of long-term lending to banks.

The Bank of England (BOE) also meets on Thursday and there is much talk it may open the way for more quantitative easing.

"A (ECB) cut would initially be perversely positive for the euro," said Robert Rennie, chief currency strategist at Westpac.

"It would become negative if you get the sense of a series of cuts," he added. Rennie expects the ECB to leave rates unchanged but has forecast a total of 75 basis points of cuts until the first quarter of 2012.

The euro, last at $1.3344, rebounded late in the U.S. session after Germany said it would help its own banks if necessary and opened the possibility of using a regional bailout fund to strengthen the euro zone banking system.

The euro is well-off a nine-month trough of $1.3144 struck this week. A break above $1.3400 could see a correction toward the 38.2 percent Fibo of the $1.4550/$1.3145 move at $1.3680, according to a trader.

The single currency hovered around 1.2329 Swiss francs, having hit its highest level since May on Wednesday.

For now, investors are focused on the ECB's monetary policy meeting, whose outcome seems increasingly uncertain. Markets are split on whether it might leave rates unchanged, cut by as much as 50 basis points and/or announce other policy measures to help stimulate the region's economy and support banks.

An easing could even give a fillip to the euro, given recent heightened worries about a recession in Europe. On the other hand, doing nothing could disappoint investors looking for bold action.

The single currency lost about 10 percent against the dollar since that late August peak at $1.4550.

With markets highly concerned with the threat of a systemic shock in Europe, they barely took notice of another round of better-than-expected U.S. data showing the economy is still growing, albeit slowly.

The recent flow of data suggests fears of recession in the U.S. and a hard landing in China are possibly overdone. A good number from Friday's U.S. non-farm payrolls could set the stage for a rally in risk assets.

The dollar index eased 0.7 percent to 79.004, off an nine-month peak of 79.838 earlier in the week. The dollar was steady against the yen at 76.84, off a three-week peak of 77.26 struck on Monday.

The improvement in risk sentiment saw commodity currencies rally, with the Australian dollar gaining more than 1 percent. It last traded at $0.9643 from an offshore peak of $0.9676. The Aussie has lost nearly 10 percent in September.

(Editing by Wayne Cole)