FOREX-Aussie up after China GDP; Italy downgrade weighs on euro
* Moody's cuts Italy ratings ahead of debt sale
* Euro hovers near previous day's 2-year low
* Aussie dollar rises after China's GDP meets expectations
By Masayuki Kitano
SINGAPORE, July 13 (Reuters) - The euro hovered near a two-year low versus the dollar on Friday after Moody's cut Italy's credit rating, while the Australian dollar rose as China's second quarter growth met expectations.
The Australian dollar rose 0. 3 percent to $1.01 69, boosted by data showing that China's economy grew 7.6 percent in the second quarter from a year earlier. China's economic health is always a key Australian dollar driver because China is Australia's single largest export market.
While today's result was the slowest pace of Chinese economic growth in three years, the reading was exactly in line with expectations and came as a relief to markets, which had been worried about the risks of a weaker result.
"I think a soft landing would be the most reasonable expectation about the outlook," said Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo.
"I don't think there is much need to worry about for China, which is a country that can afford to implement fiscal measures quickly," Karakama said, referring to the potential for government spending to boost growth.
The euro held steady at $1.220 3, not far from a two-year low of $1.2166 hit on trading platform EBS the previous day.
The single currency dipped to as low as $1.2181 earlier on Friday, after Moody's cut Italy's credit rating by two notches.
Moody's warned it could further downgrade the new Baa2 rating, which stands just two notches above junk status, if Italy's access to debt markets dried up.
The timing of the downgrade is particularly bad as it comes just hours before Italy heads to the debt market to raise 5.25 billion euros.
"It's probably going to be a factor weighing on Italian bond yields and weighing on European fears. It's a sign of the times, I suspect we'll be seeing this for a long time to come - ratings downgrades for key European countries," said Shane Oliver, chief economist at AMP Capital Markets.
Immediate support for the euro is expected around $1.2151, wthe June 29, 2010 low, with another support level around $1.1876 a low struck on June 7, 2010.
In addition, there was some talk of an option barrier in the euro at $1.2150. That suggests that options players may bid for the euro if it drops close to that level and give the single currency some support.
With the euro languishing, the safe-haven dollar held near a two-year peak hit against a basket of major currencies the previous day.
The dollar index stood at 83. 615. It had climbed to 83.829 on Thursday, the highest level since July 2010.
Against the yen, the dollar held steady at 79. 28 yen.
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