FOREX-Euro rallies on optimism that bloc to stay intact
* Euro rallies against the dollar and the yen * G7 finance ministers, central bank governors to hold call Tuesday NEW YORK, June 4 (Reuters) - The euro rallied against the dollar and the yen on Monday on optimism European authorities will keep the euro zone intact, though concerns over Spain's ailing banking sector and global growth cointinued to cap gains. Grim U.S. jobs data on Friday added to risk aversion globally on fears of a worldwide slowdown but France and the European Commission signaled their support on Monday for an ambitious plan to use the euro zone's permanent bailout fund to rescue stricken banks, as European officials try to reassure investors they can contain an escalating crisis. . Finance ministers and central bank governors of the Group of Seven leading industrialized nations will hold a conference call on Tuesday morning to discuss the European debt crisis, but there will be no Group of 20 ministerial call, a spokeswoman for Canadian Finance Minister Jim Flaherty said on Monday. . "Market sentiment picked up on Monday as European policy makers continued to float ideas on broadening the powers of the European Stability Mechanism, but the rebound in risk-taking behavior may be short-lived as the EU struggles to meet on common ground," said David Song, currency analyst at DailyFX in New York. The euro was 0.4 percent higher at $1.2486, moving up from the low touched on Friday, its lowest since July 2010. Traders cited large bids at $1.2370-80, while offers from funds to sell were layered above $1.2450. Trade had been thin until New York opened with London markets closed. The euro was 0.8 percent higher at 97.79 yen well above Friday's 11-1/2-year low of 95.57 yen, using Reuters data. Wells Fargo said in a note that "while the political discussion so far lacks specifics, increasingly the idea of a 'banking union' is being floated for consideration at the late June EU leaders meeting." Comments from European Central Bank policymaker Ewald Nowotny saying he supported the idea of a European banking union earlier pushed the euro to break out of the day's ranges. [ID:nV9E8DF01N}. Markets had already been speculating there could be some new plan or action to work through the euro zone debt crisis even before New York opened. More insight on potential monetary easing may come from Wednesday's European Central Bank meeting, with markets positioning for an outside chance of a rate cut. Factory prices held steady in the euro zone in April, giving the ECB some room to cut rates. "The outlook of the euro will depend on how ready and willing the European Central Bank is to provide stimulus to the European economy," said Kathy Lien, director of currency research at GFT in Jersey City. "They (the ECB) have made it clear that they want the solution to come from Europe's leaders but the recent deterioration in economic data and slide in asset prices makes easier monetary policy inevitable." On Thursday, Federal Reserve Chairman Ben Bernanke testifies before a congressional committee about the U.S. economy and may offer more clues to possible policy stance. The weak U.S. labor market has raised expectations of more Fed quantitative easing by some analysts. "While expectations of more QE by the Fed may help the euro, with no quick decision about Spain in sight, the pressure on it will remain," said Beat Siegenthaler, currency analyst at UBS in Zurich. The euro's sell-off intensified last week after Spain's borrowing costs spiked on worries it may need to issue more bonds to bolster its ailing banks, putting more stress on markets already concerned that Greece may exit the euro zone. Spanish and Italian bond yields eased on Monday, but with no credible and long-lasting policy response expected, borrowing costs are likely to stay elevated. EMBATTLED EURO Spanish Prime Minister Mariano Rajoy called on Saturday for the establishment of a central authority to oversee fiscal policy in the euro zone. Germany also wants a big leap forward in euro integration, but investors are doubtful whether such moves will restore confidence in the near term. The dollar rose 0.4 percent to 78.30 yen, off Friday's trough of 77.65, its lowest since mid-February. The currency pair has been volatile on fears of yen-selling intervention by the Japanese authorities, a factor which will keep investors edgy. Expectations of more easing by the Bank of England also kept a lid on the British pound. Sterling was 0.1 percent higher at $1.5380, with some investors looking to sell into a bounce before a BoE policy decision on Thursday.
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