Euro hangs tough as Europe hammers out deal

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

SYDNEY (Reuters) - The euro held up well early in Asia on Thursday with markets, which have all but given up hopes for a comprehensive plan to solve the euro zone debt crisis, seemingly satisfied for now with the sketchy news that is coming out of the EU summit.

A draft statement from the emergency meeting showed Europe's leaders intend to multiply their rescue fund fourfold to one trillion euros and press Greece's creditors to accept losses of over 50 percent on their bond holdings.

However, details of how they plan to end the debt crisis is not fully formed.

"It's a case of expectations being so low that the risk of a disappointment wasn't that high," said Grant Turley, strategist at ANZ in Sydney.

"Risk seems to be reasonably positive, U.S. durable goods order data was decent ... in the background, people are still suspecting the Fed might consider doing more on the quantitative easing front, so in that sense markets are taking an optimistic tone."

The euro was at $1.3900, compared with $1.3902 late in New York. The common currency had bounced off an overnight low around $1.3796 after the draft statement.

The move saw the dollar index retreat to 76.204 from an overnight high of 76.662. The index, though, has been on a downtrend in the past few weeks, having reached a seven-week low on Wednesday.

"Dovish Fed, easing in dollar funding/liquidity conditions, OK corporate earnings from any company that earns revenue abroad, and fading fear of crisis as we await decent Q3 GDP data, all make for a fundamentally bearish dollar outlook," said Kit Juckes, strategist at Societe Generale.

Data on US gross domestic product for the third quarter later on Thursday are expected to show annualized growth picked up to 2.5 percent. That should further calm fears of recession and benefit risk trades.

That also partly explained why dollar/yen has been reaching record lows, keeping investors on edge of yen-weakening intervention from Japanese authorities.

The dollar touched an fresh all-time low around 75.70 yen on Wednesday, but has since recovered to 76.14.

"At some point, intervention will be forthcoming, though we expect that to happen closer to 75.00, and can't see how the yen will be turned around on a sustainable basis against the dollar," Juckes added.

In what is fast becoming a daily mantra, Japanese Finance Minister Jun Azumi said the government is prepared to intervene in the currency market if moves are deemed to be excessively speculative.

The Bank of Japan holds its policy meeting Thursday and is expected to discuss further easing, perhaps by expanding its asset-buying program.

The star performer, however, was the New Zealand dollar, which bounced back above $0.8000, from Wednesday's trough of $0.7913, after the country's central bank maintained a tightening bias.

The Reserve Bank of New Zealand kept rates on hold at 2.5 percent as expected, but said it would have to tighten policy at some stage when the global outlook improves.

"The market reaction was one of relief that the tightening bias was not removed," said Roland Randall, strategist at TDSecurities.

"We retain our forecast for the RBNZ to begin tightening policy in June 2012."

(Editing by Wayne Cole)