Euro rises ahead of Monday euro zone meeting

NEW YORK Fri Feb 17, 2012 1:43pm EST

A machine counts and sorts out euro notes at the Belgian Central Bank in Brussels December 8, 2011. REUTERS/Yves Herman

A machine counts and sorts out euro notes at the Belgian Central Bank in Brussels December 8, 2011.

Credit: Reuters/Yves Herman

NEW YORK (Reuters) - The euro gained against the dollar and the yen on Friday on hopes for a rescue package for Greece but gains were capped before a key meeting on Monday with investors hesitant to make big bets before a U.S. holiday weekend.

Greece edged closer to winning the 130 billion euro rescue as officials said Germany was optimistic a deal could be struck despite misgivings that Athens would stick to commitments.

Euro zone finance ministers were due to vote on the package on Monday, the Presidents Day market holiday in the United States even though, given the stakes, some U.S. traders are expected to be at their desks.

Traders said uncertainty could keep the euro rangebound until a rescue is finalized.

"We're probably going to go home pretty flat," said John Doyle, a currency strategist with Tempus Consulting in Washington, D.C. "We're still very hesitant until a deal is done."

The euro rose against the dollar but trimmed early gains as the New York session wore on. The single currency edged up 0.1 percent to $1.3153, off the day's high of $1.3198. For the week, the euro fell 0.4 percent against the dollar.

Against the yen, the euro rose 0.8 percent to 104.50 yen, down from an earlier peak of 104.66 yen, the highest since December 5. The euro also posted its best weekly gain against the yen since January 29, with a 2 percent gain.

Greece, which has a 14.5 billion euro bond redemption payment due on March 20, needs a rescue to stave off a disorderly default.

Analysts expect the euro could gain further early next week against both the dollar and the yen once euro zone officials give their seal of approval to a Greek bailout. Asmara Jamaleh, currency strategist at Intesa Sanpaolo in Milan, said it could go as high as $1.3300 though not beyond $1.3400.

But even if gains materialize in the short term they are not expected to hold given that so many interests have to agree and provide funding even as euro zone economic growth is questionable in the near term.

"The long-term implications still point to a weaker euro/dollar and any rally is just temporary relief before the next major leg lower towards 1.2000," said Christopher Vecchio, currency analyst at DailyFX in New York.

YEN WEAK

The Japanese currency also weakened against the dollar, still pressured by the Bank of Japan surprise decision this week to boost its asset-buying scheme by $130 billion.

The dollar rose 0.8 percent to 79.44 yen, according to Reuters data, and hit its highest level since October 31. That day Japan sold a record 8.07 trillion yen in currency intervention after the dollar hit a post-World War Two record low of 75.311 yen on electronic trading platform EBS.

Friday's gains left the dollar in sight of the post-intervention high on October 31 at 79.553 on EBS and 79.51 on Reuters, though traders reported offers at 79.30/50.

"A move above 80-82 yen is probably in sight and then we would look at reducing our short yen positions slightly," said Dagmar Dvorak, investment manager at Barings Investment Management in London, which has total assets under management of around $47.5 billion.

"If risk aversion, however, increases and the market starts to test the Bank of Japan's resolve again by pushing the yen towards more expensive levels this would offer an opportunity to add to our short positions."

Barings held a short yen position for most of last year, which they built more aggressively in September.

The dollar gained 2.4 percent this week against the yen, its best week since November 6.

Upbeat U.S. jobs and factory activity data on Thursday continued to support the dollar against the Japanese currency, with U.S. inflation data in line with expectations on Friday.

But with the Federal Reserve committed to keeping interest rates low, long-term dollar gains based on higher U.S. yields were seen as unlikely.

(Reporting By Nick Olivari and Luciana Lopez; Editing by James Dalgleish)