FOREX-Euro down vs most major currencies on doubts on ECB plan

* Euro/dollar pares gains, having hit highest since July 5
* Optimism about the prospect of ECB action seen limited
* Analysts say euro bounce could draw more selling

By Gertrude Chavez-Dreyfuss
NEW YORK, Aug 6 (Reuters) - The euro pared gains against the
dollar and slipped against other currencies on Monday as doubts
resurfaced among investors about the potental effectiveness of
measures pledged by European policymakers to resolve the euro
zone debt crisis.
Earlier Monday, the euro had hit a one-month peak against
the dollar, adding to Friday's rally, but that came at a time
when the market was very illiquid and so that move higher didn't
have much momentum to it.
The recent strengthening of the euro owed mainly to optimism
about a European Central Bank plan to step in and buy bonds to
reduce high Spanish and Italian borrowing costs in coming
months, some analysts said.
But doubts persisted about the ECB's proposed plan of action
and many saw more pain for the euro zone before a resolution to
the crisis is reached. This meant some investors were inclined
to use the euro's bounce to put on fresh bets the currency would
weaken.
"There is a definite dichotomy in investor sentiment at the
moment. There has been a good bit of interest from shorter-term
traders to fade the recent bout of euro strength given the lack
of action and follow-through from Draghi last week," said Andrew
Cox, currency strategist at CitiFX in New York.
The euro was up 0.1 percent at $1.2397 against the dollar
, below a peak of $1.2443 hit in Asian trade, its
strongest since July 5. Near-term resistance was seen at around
$1.2478, the 61.8 percent retracement of its drop from a
mid-June peak to a two-year low of $1.2042 struck in late July.
The euro zone's common currency was down 0.2 percent against
the yen at 96.96, having earlier risen to 97.79, its
strongest since mid-July. It was also slightly lower against the
Swiss franc and was 0.2 percent weaker against the
Norwegian crown.
CitiFX's Cox, however, pointed out not everybody is looking
to sell the euro. "We see continued demand for real assets in
Europe, both sovereign debt and equities, which we feel is
driven by the dissipation of Eurozone tail risk -- a development
that could continue to support the euro in the coming weeks."
ECB President Mario Draghi said last week the bank would act
only in cooperation with the euro zone bailout funds, and would
require countries to ask for help first. Spanish Prime Minister
Mariano Rajoy has signalled he may seek a full-blown aid package
but is still undecided.

CHOPPY TRADING
The euro has seen choppy trading since the ECB's policy
meeting last Thursday.
While some are relieved the central bank is prepared to act
by buying bonds in the secondary market and expanding its
balance sheet, many are not convinced this alone will be
sufficient to trigger a sustained euro rally.
However, analysts at Morgan Stanley recommend buying the
euro at 96.70 yen, with a target of 105.00 yen and a stop at
95.20.
"The ball is now in the politicians' court, and we believe
it is only a matter of time before they choose, or are forced by
markets, to ask for official aid, opening the door for ECB
purchases and a tightening of peripheral spreads," they said in
a note to clients.
Traders said a narrowing in peripheral bond yield spread
over Germany was likely to offer some support to the euro in the
near term. Besides, hefty speculative bets against the euro
meant that the common currency could gain some ground due to
unwinding of those positions, before falling afresh.
"We remain sceptical of the euro's gains and think any
bounce into the $1.25-1.26 area will be a good level to initiate
short positions again," said Peter Kinsella, currency strategist
at Commerzbank.
"What President Draghi has indicated is he will do
everything to protect the euro and to us that means the ECB
balance sheet will be expanded. We expect the euro to gradually
depreciate, something which will help the peripheral countries."