FOREX-Dollar broadly weaker on Fed stimulus view
* Euro recovers vs dollar as Fed meeting eyed * Australian dollar rises to 6-week high vs dollar * Euro zone data, news add to bearish picture By Gertrude Chavez-Dreyfuss NEW YORK, June 19 (Reuters) - The dollar fell across the board on Tuesday on expectations the Federal Reserve may ease monetary policy further after a series of disappointing economic data. Analysts expect the Fed to extend its long-term bond-buying through Operation Twist by a few months from the current deadline of June. The Fed's rate-setting committee starts its two-day meeting on Tuesday. The euro rose as a result of these expectations, despite a weak German economic sentiment survey. But its gains looked vulnerable to the persistent stream of negative news out of the euro zone. Nervous investors awaited the result of Greek coalition negotiations that may lead to the country's bailout terms being renegotiated. "There is positioning ahead of the Fed with the dollar unable to capitalize on euro negative sentiment ahead of the Fed," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "The risk is relatively high that (Fed) officials will signal the need for more stimulus." The euro was last up 0.5 percent on the day at $1.2640 after hitting session highs of $1.2647. Support is seen around $1.2536, the trendline drawn below daily lows from June 1, and the 21-day moving average at $1.2530. Strategists, however, said the euro would struggle to rally beyond the one-month high of $1.2748 posted on Monday after a win for pro-bailout parties in the Greek election, given the dire economic outlook and worries about Spain's banking system. News that a second, more detailed audit of Spanish banks would be delayed until September fuelled more bearishness towards the euro zone's fourth-largest economy, whose 10-year borrowing costs have ballooned above 7 percent. Spain's Treasury sold 12- and 18-month debt on Tuesday at higher yields of over 5 percent, c ompared with just under 3 percent in a previous auction in May. It will sell between 1 billion and 2 billion euros of bonds on Thursday. "We believe sustained high yields will eventually force Spain into taking a full-fledged bailout," wrote Brown Brothers Harriman in a note, adding that the delay in the results of Spain's banking sector audit would not sit well with investors. "The market simply does not have this kind of patience." Investors were also unnerved after a German court said the government had not consulted parliament sufficiently about the configuration of Europe's permanent bailout scheme. "The market has taken this negatively," said Gavin Friend, currency strategist at National Australia Bank, referring to the comments from the German court. "We would like more details but the market wants to shoot first and ask questions later. This could curtail the ESM's powers and comes during nervous times when the impasse between the German view and that of the peripherals and the world is growing." The euro earlier fell briefly after the German ZEW survey, which showed economic sentiment posted its biggest monthly drop since 1998 in June in a sign that even the bloc's strongest economy was not immune from the crisis. FED EASING EYED The Fed will announce its policy decision on Wednesday and some market players have speculated it could opt for a third round of quantitative easing as Europe's troubles pose a risk to growth in the world's largest economy. Another round of monetary stimulus would weigh on the U.S. dollar and boost growth-linked currencies like the Australian dollar. The dollar index, which measures the greenback against a basket of major currencies, was down 0.4 percent at 81.651, having struck a one-month low of 81.266 on Monday. The dollar edged lower against the yen, easing 0.1 percent to 78.98 yen. A drop below 78.61 yen will take it to its lowest in two weeks. The greenback weakness came as interest rate differentials moved against it on expectations of more Fed easing. Those expectations saw the growth-related Australian dollar jump to a six-week high of US$1.0147. Meanwhile, against the backdrop of slowing growth, the world's major economies, or G20, are set to urge Europe to take "all necessary policy measures" to resolve its woes and U.S. President Barack Obama requested a meeting with its leaders.
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