NEW YORK (Reuters) - The euro rose against the dollar and the yen on Wednesday as an ECB policymaker fuelled hopes of more bond-buying by the bank, but investors saw little reason to push the euro zone single currency outside recent ranges.
Investors are shifting their focus to Italy and Spain in the euro zone's ongoing sovereign debt crisis, pressuring yields for both countries.
But the European Central Bank's Benoit Coeure said on Wednesday that the scale of market pressure on Spain is not justified given the reforms being undertaken by its government and that the ECB still has its bond-buying program as an option.
Coeure's comments helped the euro touch a near one-week high against the dollar, recovering ground lost in the previous session. The currency also advanced against the yen after closing at about a seven-week low in the previous session.
Still, "that wasn't a particularly strong comment from the ECB policymaker," cautioned Nick Bennenbroek, head of currency strategy at Wells Fargo Bank in New York. "I still think we're in choppy trading conditions."
Bond yields underscored the market's continued wariness: While Spanish 10-year yields fell on Wednesday, they remained near the key 6 percent level. In addition, Italy blamed a jump in its one-year borrowing costs on Wednesday on fears of contagion over Spain's budget problems.
Coeure's comments came one day after Spanish bond yields hit their highest levels this year, exacerbating worries about the global economy after last week's disappointing U.S. jobs report and soft Chinese imports.
The ECB left the bond-buying program unused for the seventh time in eight weeks last week.
"Today's price action comes after a couple of days of pessimism, but the ECB's comments helped reverse some of that," said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman in New York.
"However, I think this is a temporary respite for the euro, and the Spain issue will remain a major issue, if not intensify going forward," Thin said. "Greece will also be back in the headlines soon as well."
Greece on Wednesday called a snap election for next month, opening a campaign that may not produce a clear result and that could threaten implementation of the international bailout plan that saved the nation from bankruptcy.
The euro was last up 0.21 percent at $1.3107, trading largely within its range of the previous session. Traders said demand from hedge funds and sovereign names propped up the common currency after reportedly buying on dips.
On the upside, the euro should find resistance at $1.3160-70, which is around the 38.2 percent retracement of its March 27 to April 9 drop.
On the downside, support can be found between $1.2973, the February 16 low, though the euro has mostly been stuck between $1.30 and $1.35 since late January.
"I will use small gains (in the euro) to get better levels to sell ... If Spanish yields go back above 6 percent then it would favour a break-out of the range to the downside," said Jeremy Stretch, head of currency strategy at CIBC.
Uncertainty about prospects for the euro has fallen somewhat as reflected in the options market, with three-month risk reversals in the euro/dollar still biased for euro puts, trading at -2.25 vols on Wednesday, but improving from -3.5 vols in mid-February.
DOLLAR REBOUNDS FROM 6-WEEK LOW VS YEN
The dollar was up 0.42 percent at 81.00 yen, after earlier in the global session dropping to 80.57, according to Reuters data, its lowest level since March 7.
Analysts said expectations that the Bank of Japan may increase its asset purchases as soon as its policy meeting on April 27 could keep the yen under pressure. Sources told Reuters the Bank of Japan will consider easing monetary policy at that meeting.
The euro rose 0.63 percent to 106.18 yen, recovering from an earlier seven-week trough of 105.42 yen, according to Reuters data.