Euro rises on Greek debt deal, upside seen limited

TOKYO (Reuters) - The euro hit a one-month high in early Asian trade on Tuesday after officials said global lenders reached a deal on new debt targets for Greece, key to freeing up the next installment of emergency aid.

The euro gained about 0.3 percent to $1.3008, its highest level since October 31. It last traded up 0.2 percent at $1.2993.

Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo, said the euro's rise above Friday's high of $1.2991 prompted players to trigger stops around $1.3.

But he cautioned, however, that the euro still faced downside risks as the latest agreement does not offer a fundamental resolution to the euro zone's debt crisis.

"The euro gained but the rise is small, and it's unlikely that it will climb further, with big funds winding down their positions ahead of the year-end. Any rise will be countered by selling to cap the euro's upside," Maeba said.

Greece's international lenders agreed to reduce Greek debt by 40 billion euros to 124 percent of gross domestic product by 2020 through a package of steps, sources said.

It was not immediately clear how the debt would be reduced from its currently forecast level of 144 percent in 2020 to the target of 124 percent, but it is expected to involve a series of measures including an extension of the maturity and lowering of interest rates on loans to Greece, a debt buyback and a return to Athens of profits made by the European Central Bank on Greek debt it holds.

Reaction in stock markets may be muted as an agreement was expected and there has been a lack of progress in the United States towards resolving the 'fiscal cliff'.

Republicans in the U.S. Congress on Monday called on President Barack Obama to detail long-term spending cuts to help solve the country's fiscal crisis, while holding firm against the income tax rate increases for the wealthy that Democrats seek.

Japan's Nikkei stock average .N225 is expected to trade in a range after a recent fast-paced rise on the back of weakness in the yen.

On Monday, global shares and the euro weakened as investors cautiously awaited the outcome of the euro zone finance ministers meeting with Greece's global lenders and amid the lack of progress on U.S. fiscal issues.

(Additional reporting by Ayai Tomisawa in Tokyo; Editing by Edwina Gibbs)