FOREX-Euro rises 2nd day on Spain budget but gains seen limited

* Spain's budget soothes market, lifts euro
* Gains may be limited with Moody's review on Spain due
* Uncertainty over Spain aid request remains
* Euro faces chart resistance at $1.2960,

By Julie Haviv
NEW YORK, Sept 28 (Reuters) - The euro rose against the
dollar for a second straight session on Friday, recovering from
a two-week low hit the previous day, as investors viewed Spain's
recently unveiled budget as laying the groundwork for applying
for financial aid.
Analysts said the euro's gains may be limited as long as
uncertainty persisted over when and whether Spain will request a
bailout. Longer term, concerns Spain would be unable to
implement its budget plans and bring down its deficit could
weigh on the single currency.
A bailout request by Spain is a precondition for the
European Central Bank to start buying its debt to bring down its
borrowing costs. Analysts and traders said this would lift the
euro, but Spain has appeared reluctant to take that step.
"But the euro may struggle to sustain gains for very long
with investors skeptical over how successful Madrid would be in
implementing the measures, while others fretted the country
could soon see its credit rating cut to non-investment grade or
so-called junk status," said Joe Manimbo, senior market analyst
at Western Union Business Solutions in Washington D.C.
The euro was last up 0.1 percent at $1.2928, firmly
above Thursday's two-week low of $1.2828.
"Risk appetite is coming back after the Spain budget," said
Dag Muller, technical analyst at SEB, but he did not expect it
to last. "It will translate into a fresh high for euro/dollar
beyond $1.3173 and then the market will start to wobble".
Madrid announced a detailed plan for economic reforms and a
budget based mainly on spending cuts rather than tax measures,
in what many analyst saw as an effort to pre-empt the conditions
for a bailout.
The euro is up about 2.1 percent on the quarter, thanks
largely to expectations that Spain's borrowing costs will be
brought down when the ECB starts buying Spanish debt.
Trade on Friday was expected to be impacted by month-end
rebalancing flows.

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Moody's rating agency is due to review Spain's sovereign
rating by the end of this month and may downgrade it to junk
status, while the Spanish government is also due to publish its
full evaluation of the banking sector on Friday.
"I expect the euro to gradually decline. There's a risk of
credit downgrade on Spain. The talk between Greece and the
troika may get nowhere. And the euro zone economy will be
fragile," said Minori Uchida, chief currency analyst at the Bank
of Tokyo-Mitsubishi UFJ in Tokyo.
Indeed, much of the euro zone is mired in a recession, which
should keep ECB monetary policy accommodative for quite some
time. A rate cut may be in the pipeline as well, perhaps as soon
as its monthly policy meeting next Thursday, analysts said.
On Thursday, ratings agency Egan-Jones cut Spain's sovereign
rating further into junk status, citing the country's banks and
struggling regional governments.
The euro faces chart resistance at $1.2960, the 38.2 percent
retracement of its Sept. 17-27 slide. The 200-day moving average
around $1.2825 is expected to serve as solid support, however.
"It's positive that Spain is laying the groundwork for a
bailout. But we still hear disharmony between the euro's
'northern league' and the south," said Ayako Sera, senior market
economist at Sumitomo Mitsui Trust Bank in Tokyo.
The Spanish budget goes to parliament on Saturday and
debates could last weeks. Spain's 17 autonomous regions still
must present budgets and find an additional five billion euros
in adjustments to meet overall public deficit reduction goals.
The euro last traded up 0.3 percent to 100.52 yen,
recovering from Thursday's two-week low of 99.64.
The dollar also gained against the yen, trading 0.3 percent
higher at 77.78 yen, according to Reuters data.