FOREX-Euro steady, seen capped with Spain in focus
* Spain protests, bailout hesitancy weigh on euro
* Euro support intact at 200-day moving average near $1.2826
* Dollar bids cited at 77.50 yen
By Masayuki Kitano and Lisa Twaronite
SINGAPORE/TOKYO, Sept 26 (Reuters) - The euro held steady against the dollar on Wednesday, with its upside seen capped by concern about Spain's hesitancy to request a bailout even as protests there turned violent.
The euro struggled to gain ground on the dollar, dogged by uncertainty over when Spain will seek external aid, a condition for the European Central Bank to start buying Spanish debt to bring down the country's borrowing costs.
The market kept its focus on Spain after protesters clashed with police in Madrid on Tuesday, as the Spanish government prepared a new round of unpopular austerity measures for the 2013 budget to be announced on Thursday.
The euro held steady at $1.2899, not far from Tuesday's low of $1.2886, which was the euro's lowest level since Sept. 13. The euro has shed roughly 2 percent since hitting a four-month high near $1.3173 last week.
Demand for euros from some market players that were caught off guard by its recent rally may lend the single currency some support, but its gains are likely to be limited in the near term, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
"I think what we're seeing is a reversal of some excessive moves that we saw earlier," Okagawa said, referring to the euro's recent short-covering rally that had lifted the single currency about 9 percent from a two-year low hit in late July.
Any rise in the euro to levels above $1.30 is likely to be short-lived, and the single currency will probably have a hard time staying above 100 yen, he added.
Against the Japanese currency, the euro held steady at 100.31 yen.
One possible support level for the euro versus the yen is near 100.14 yen, the 38.2 percent retracement of the euro's rally that lasted from late July to mid-September.
Against the dollar, possible support for the euro lies near $1.2826, its 200-day moving average.
"The euro should find support at levels around $1.28... If that is breached, I think that would suggest that a try for the upside has ended," said a trader for a European bank in Tokyo, adding that the euro may then start falling towards $1.25.
One currency that could get a boost if the euro falters is the safe haven yen, traders say.
Capped by its own problems, the euro could slip below 100 yen over the course of the day, said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.
The dollar may also slip toward 77.50 yen, but the U.S. currency may then rebound as there are heavy dollar bids at that level, Saito said. Wariness that Japanese authorities might intervene to stem any yen rise will also probably limit the dollar's drop against the yen, he added.
The dollar held steady at 77.77 yen, not too far from a seven-month low of 77.13 yen hit on Sept. 13, the day the U.S. Federal Reserve announced aggressive monetary stimulus to promote the economy's recovery.
Traders say the yen could get a lift this week from Japanese fund repatriation ahead of half-year book-closings, although some market participants said many companies had already covered their needs so such flows were unlikely to be significant.
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