FOREX-Euro slips vs dollar ahead of ECB meeting
* Euro lower but supported by expectations of bold ECB action * Risk of disappointment limits upside to euro * ISM numbers could sway U.S. dollar NEW YORK, Sept 4 (Reuters) - The euro slipped against the dollar o n T uesday as investors grew cautious on fears a European Central Bank plan to tackle the region's debt crisis may lack detail. However, the currency held within its recent trading range. The cost of insuring against a Spanish and Italian default fell, lending some support to the euro. Analysts say it is likely to hold its ground in the run-up to the ECB meeting on Thu rsday, at which policymakers are expected to announce a bond-buying plan to help lower Spanish and Italian borrowing costs. That speculation was reinforced on Monday when ECB President Mario Draghi said central bank purchases of sovereign bonds of up to three years maturity did not constitute state aid. . Any move by the ECB to stem the debt crisis is expected to lower the additional cost of holding assets perceived to have higher risk. "Rumors of progress in the euro zone continue to swirl, giving investors hope that the central bank will announce new measures to lower peripheral yields and support the region's economy," said Kathy Lien, managing director at BK Asset Management. "Yet the euro/dollar is trading slightly lower this morning because traders realize that during the debt crisis, European policymakers have had a track record of disappointment." The euro was last down 0.2 percent at $1.2565, not far from the two-month high of $1.2636 touched last week. U.S. markets were closed on Mo nday for the national Labor Day holiday, which may increase volatility in Tuesday's New York session as traders have less time before the ECB meeting to stake positions. Analysts said with expectations of ECB action running high there was some scope for disappointment, which could cause the euro to fall after the meeting. Investors are hoping the ECB will at least reveal the range of maturities that are eligible for purchase and conditions are not too stiff for peripheral countries to request help. "There is room for disappointment if the plan lacks specifics and that could see the euro drop toward $1.25," said Chris Turner, head of currency strategy at ING. "But I think the ECB is intent to get a floor under this debt crisis saga and it is aware of the high expectations." Morgan Stanley strategists said they did not expect the euro to push much higher before the ECB meeting and would take profits at their $1.27 target if it was reached before Thursday. Additionally, investors are likely to be cautious about the euro given the economy is struggling, putting pressure on the ECB to lower interest rates in the coming months. French President Francois Hollande said on Tuesday that an EU leaders summit on Oct. 18-19 could finalize solutions, not just on debt-stricken Greece but also Spain, whose government has so far resisted seeking an EU bailout despite a deep recession.. Italian Prime Minister Mario Monti said on Tuesday that the European Union must take steps to bring down the bond yields of countries that are being unjustifiably penalized by markets. . FED EASING PROSPECTS Euro weakness against the dollar could be limited in the near term, however, by speculation the U.S. Federal Reserve may launch another bond buying program, known as quantitative easing, later this month. U.S. non-farm payrolls data due on Friday are expected to provide an important gauge of the strength of the economy and the likelihood of further Fed easing. The dollar briefly trimmed gains against the euro on Tuesday after a survey showed U.S. manufacturing shrank at its sharpest clip in more than three years in August, the third straight month of contraction, and firms hired the fewest workers since late 2009.. "It's a disappointing number that can bring the Fed a step closer to offering more support to the U.S. economy," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. "The construction number also added to the disappointing tone of the ISM and as a result we have seen the dollar surrender some of its early gains." The dollar was firmer against the yen, helped in part by buying from Japanese importers. The U.S. dollar was up 0.2 percent against the yen at 78.36 yen.
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