FOREX-Euro edges higher, but outlook clouded by Spain
* Euro inches away from previous day's 3-wk low vs dollar
* Focus on when Spain might make formal request for aid
* Aussie dollar eyes RBA rate decision due 0430 GMT
By Masayuki Kitano and Ian Chua
SINGAPORE/SYDNEY, Oct 2 (Reuters) - The euro edged higher and held above a three-week low against the dollar on Tuesday, but its outlook was clouded by concerns over Spain's fiscal woes and uncertainty over the timing of a possible aid request by Madrid.
The single currency was helped by data the previous day showing U.S. manufacturing grew slightly in September for the first time since May, a reading that weighed on the safe haven dollar and lent support to risky assets.
The euro rose 0.1 percent to $1.2901, inching away from Monday's low near $1.2804 on trading platform EBS, its lowest level in about three weeks.
Spain remained a focal point, with traders waiting for Madrid to seek a bailout and trigger the European Central Bank's bond buying programme, a scheme aimed at lowering the borrowing costs of indebted euro zone countries.
In addition, Moody's has yet to announce its review of Spain's rating, which could see Madrid's credit standing cut to junk status.
The euro's near-term outlook could hinge on whether Spain makes an early request for a bailout, or is forced by the market into seeking such aid, said Sim Moh Siong, FX strategist for Bank of Singapore.
"If Spain requests proactively, I think the euro would have a lot more upside, perhaps to $1.33," he said.
"If they wait for the market to force them to do so, that means a sell-off in the (Spanish) bond market and the yield back up to 7 percent," he said, adding that the euro could face downside risk under that scenario.
European officials said on Monday that while Spain is ready to request a euro zone bailout for its public finances as early as next weekend, Germany has signalled that it should hold off.
Gains in the euro could be limited ahead of a Eurogroup meeting on Oct. 8, given the risk that the gathering may reveal rifts among European officials regarding Spain, said Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo.
"If we see headlines that highlight the type of disagreement that you often see, the euro could fall towards levels such as $1.27 or $1.26," he said.
Against the yen, the euro edged up 0.3 percent to 100.78 yen . The safe haven yen slipped broadly, with the dollar edging up 0.1 percent to 78.12 yen.
The Australian dollar rose 0.2 percent to $1.0374 as investors awaited the Reserve Bank of Australia's (RBA) policy decision due at 0430 GMT. Markets have priced in a 62 percent chance of a quarter-point cut in the 3.5 percent cash rate.
Analysts polled by Reuters on Friday generally expected no change, although many say they would not be surprised if the RBA decided to cut.
A stubbornly high Australian dollar, coupled with a sharp slide in the prices of some of Australia's top exports and a cooling in the mining sector all argued for an easing, analysts said.
Data on Monday offering more evidence of softness in China's economy, Australia's single largest export market, also supported the case for a cut, traders said.
Still, many economists expect the RBA would wait for further signs of deterioration in the economy before lowering interest rates.
"The RBA meeting presents quite a risk to short AUD positions, should they decide to keep rates unchanged," said Mary Nicola, a strategist at BNP Paribas.
"Our economists expect the RBA to stand pat and cut in November. The RBA is likely to highlight the weakness in China and the potential ramifications on the economy. This would potentially set the stage for a cut in November."
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