FOREX-Euro near 2-week lows, market awaits Spain budget
* Spanish budget in focus, may lead to aid request
* Euro near two-week lows vs dollar and yen
* Support for euro seen at 200-day moving average near $1.2826
By Nia Williams
LONDON, Sept 27 (Reuters) - The euro traded close to a two-week low against the dollar on Thursday as investors awaited a draft budget from Spain that could pave the way for the country to request an international bailout.
Uncertainty about when Spain will request a rescue programme has weighed on the euro in recent sessions, with the single currency coming under pressure as Spanish 10-year bond yields hovered near 6 percent.
Spain is expected to present its 2013 budget draft later on Thursday. A credible budget along with comprehensive structural reforms could build the foundation for meeting conditions for a Spanish aid package and intervention by the European Central Bank in the bond market, analysts said.
The euro was close to flat at $1.2862, just above a two-week low of $1.2835 set the previous day. The euro has support at the 200-day moving average near $1.2826 and around $1.2740, the 38.2 percent retracement of the July to September rally.
"All eyes have been on Spain for the last week or so. We have had a big shift in euro positioning recently so going into the budget investors are probably positioned fairly neutral," said Michel Sneyd, FX strategist at BNP Paribas.
Adding to concerns over Spain, the indebted Castilla La Mancha region may seek 800 million euros ($1 billion) in emergency funding from the central government, regional and party sources said on Thursday.
Most strategists said the euro was likely to appreciate if and when Spain requests a bailout to trigger ECB bond-buying, although gains would be curbed by concerns about Greece.
"The reaction to the Spanish budget and whether Spain is going for a bailout or not in the near term along with the clear and present danger that Greece presents will be factors that will keep gains limited," said Simon Derrick, head of currency research at Bank of New York Mellon.
Demonstrators clashed with police in Athens and Madrid this week in protest over new austerity measures.
Greece's international lenders are at loggerheads over how to respond to its debt crisis, threatening more trouble for the euro in the coming weeks.
A Moody's review of Spain's ratings is also expected this week. A cut could take the country below investment grade and put further pressure on policymakers.
CHINA EASING TALK
Talk that Chinese authorities might take steps to prop up the country's stock markets had earlier bolstered riskier currencies like the Australian dollar and lent some support to the euro against the safe-haven dollar and Japanese yen.
The country's securities regulator holds a regular meeting on Thursday.
The growth-linked Australian dollar rose 0.4 percent against the U.S. dollar to $1.0410, while the New Zealand dollar climbed 0.6 percent to $0.8283.
The yen inched higher against the dollar to 77.69 yen. It remains within sight of a seven-month high of 77.13 hit on Sept. 13, the day the Federal Reserve announced a new round of monetary stimulus.
The euro also dipped against the yen, trading at 99.89 yen after having hit a two-week low of 99.71 yen on Wednesday.
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