FOREX-Euro rises after ECB eases rules, downtrend intact

* ECB eases collateral requirements to ease pressure on
banks
* "Big Four" in euro agree on aid to boost growth
* Attention shifts to June 28-29 EU summit

By Wanfeng Zhou
NEW YORK, June 22 (Reuters) - The euro edged higher against
the dollar on Friday after its worst selloff in more than six
months, buoyed by the European Central Bank's move to loosen
lending rules to ease funding pressures on struggling banks.
The ECB said it would allow financial institutions to pledge
a wider range of assets, including collateral of a lower
quality, in exchange for cash. The changes, which will be worth
over 100 billion euros, marked the ECB's second such move in six
months.
Analysts, however, are skeptical about the efficacy of the
move and concerns are growing that constant lowering of lending
standards could cause the quality of the ECB's balance sheet to
deteriorate and limit its ability to respond to new financial
strains.
"As far as I can tell, the intended effect is to make it
easier for people, businesses, banks, etc. to borrow money by
utilizing collateral that wasn't available to use before today,"
said Neal Gilbert, market strategist at GFT in Grand Rapids,
Michigan.
"Whether this actually works as intended or just leads to
more bad loans and, in turn, more bailouts will be closely
watched," he said.
The euro rose to as high as $1.2583 and was last at
$ 1.2566, up 0.2 percent, on track for a weekly decline of 1.1
percent.
On Thursday, it fell about 1.3 percent, the worst daily
performance since mid-December after a spate of disappointing
data around the world prompted investors to seek safe-haven in
the U.S. dollar.
Against the yen, the euro rose 0.4 percent to 101.08
. T he dollar gained 0.2 percent to 80.44 yen and
was on pace for its best week since late February with a gain of
2 percent.
The ECB's supportive move comes as Spain braces for a
downgrade from ratings firm DBRS by the end of August, which is
expected to pile extra misery on the country and its banks.
Spanish bond yields surged as high as 7.3 percent earlier
this week, before easing on hopes that policymakers will take
steps to alleviate pressure on the euro zone's fourth-largest
economy.

BIG FOUR
German Chancellor Angela Merkel agreed with leaders of
France, Italy and Spain on a 130 billion euros ($156 billion)
package to revive growth on Friday, but resisted pressure for
common euro zone bonds or a more flexible use of Europe's rescue
funds.
Investors' focus now turns to whether a June 28-29 EU summit
can back up the expectations of some concrete progress towards
fiscal integration and allowing the bloc's rescue funds to buy
government debt.
"Next week's summit is far too early to expect a concrete
road map. Some broad outlines might be forthcoming, but the
October summit is likely to be a more likely forum for a more
detailed proposal," said Marc Chandler, global head of currency
strategy at Brown Brothers Harriman in New York.
Analysts said the euro is likely to stay under pressure as
weak euro zone data and rising borrowing costs for peripheral
countries will add pressure on the ECB to cut interest rates or
expand liquidity operations.
Earlier, the euro had come under pressure after data showing
German business sentiment fell for a second successive month in
June to its lowest in more than two years.
Germany insisted on Friday that Greece must fulfill the
terms outlined in its bailout program, adding that there was no
room for flexibility with respect to slashing the country's debt
to 120 percent of gross domestic product.
The new conservative-led government in Greece that took
power this week promised to negotiate softer terms on its harsh
international bailout.
The dollar index was down 0.1 percent on the day at
82.3227, having risen to 82.469, its highest since June 13.
The index was on track for its biggest weekly gain since
early May, having staged its biggest rally in more than three
months on Thursday.