Euro & risk currencies rally, China PMI looms

U.S. 100 dollar notes are seen at a bank in this picture illustration in Seoul September 20, 2011.

SYDNEY (Reuters) - The euro and commodity currencies stayed sharply higher in Asia on Thursday while the dollar languished after major central banks took steps to ease a credit squeeze stemming from the euro zone debt crisis.

The euro, last at $1.3438, jumped to a one-week high of $1.3531 after central banks of the United States, euro zone, Canada, Britain, Japan and Switzerland lowered the cost of dollar loans to the banking system.

"We see this move as bullish risk as it is more of a precautionary USD liquidity injection to be used in the uncertain months ahead, as opposed to a response to an already-existing USD shortage," Nomura analysts Stanley Sun and Charles St-Arnaud wrote in a note.

"Considering the increasingly severe pressure on USD funding markets in recent days, this response is not a total surprise."

Still, global equity markets rallied hard with Wall Street .SPX surging more than 4 percent, giving Asian markets a solid lead.

The euro's upside, however, may be capped by speculation the European Central Bank will cut rates aggressively at its December 8 policy meeting and perhaps venture into more bond buying, as Europe's debt crisis remained unresolved.

The dollar index .DXY slumped to a two-week trough at 77.923, before recovering a bit of ground to last stand at 78.378.

Commodity currencies were given a further lift after China cut its reserve requirements for commercial lenders for the first time in three years, shifting to an easing policy.

The Australian dollar, which jumped 3 percent to a high of $1.0335, was last at $1.0262. Tough resistance is seen around $1.0335/40, the 61.8 percent retracement of the November fall.

The immediate focus for the Aussie is retail sales data due at 0030 GMT. Forecasts centered on a rise of 0.4 percent on the month.

"While AUD has been held hostage by external developments, the slight improvement in Australian retail sales for October may provide additional support for AUD this morning," BNP Paribas analysts said.

The boost in market confidence from the central banks came at an opportune time for Spain to issue up to 3.75 billion euros of bonds later on Thursday.

Markets will also be keeping an eye on manufacturing activity data in China, Europe and the United States. China's official PMI is due around 0100 GMT, and markets are worried it could be as dismal as HSBC's Flash PMI, which showed factory output at 32-month lows in November.

(Editing by Wayne Cole)