FOREX-Euro hits 7-1/2 month high on signs US evades fiscal crisis
* Boehner says Obama budget offer "not there yet" * Scope for year-end demand to test March high near $1.34 * S&P raises Greece debt rating from selective default * Yen vulnerable to easing expectations By Julie Haviv NEW YORK, Dec 18 (Reuters) - The euro surged to its highest level against the dollar in more than seven months and held close to a nine-month peak versus the yen on Tuesday as signs of progress in U.S. budget negotiations broadly raised appetites for riskier assets. The safe-haven dollar fell for a seventh straight day versus the euro while global stocks rallied as investors grew optimistic that Congress will reach a deficit reduction deal by the end of the year. An agreement is needed to avoid the so-called fiscal cliff of automatic tax increases and spending cuts next year that has the potential to send the world's largest economy back into a recession. But, U.S. House of Representatives Speaker John Boehner emerged from a meeting with fellow Republicans on Tuesday morning promising to press forward on talks to avert the fiscal crisis. President Barack Obama's latest offer to Republicans in the U.S. House of Representatives is a "good faith" effort to reach a compromise, the White House said on Tuesday. "This marked a dramatic departure from the exaggerated saber-rattling between Obama and Boehner just two weeks ago," said Ravi Bharadwaj, market analyst at Western Union Business Solutions in Washington. Some strategists said year-end investment flows could help the euro extend its gains to test the late-March high just below $1.34, although concerns about the euro zone's weak growth outlook may leave it vulnerable to selling in the new year. The euro was last up 0.5 percent at $1.3228 after hitting a high of $1.3238, its strongest level since early May. Traders said investors took out option barriers at $1.32, prompting more euro buying. The dollar index fell to a two-month trough of 79.260. The index was last quoted at 79.318, down 0.3 percent. Euro strength also helped push Spanish and Italian yields lower, further raising risk appetite. The euro is up about 1.6 percent against the dollar so far in December, partly due to faded fears of a fiscal crisis, but mostly over fewer concerns about the euro zone's debt crisis. Rating agency Standard & Poor's on Tuesday raised Greece's sovereign credit rating to B-minus with a stable outlook from selective default, citing its European partners' efforts to keep the country part of the euro. Euro zone partners and the International Monetary Fund have agreed to unlock 49.1 billion euros in aid by the end of March. They made the decision to release the long-delayed installment after Athens passed austerity measures and completed a debt buyback. BANK OF JAPAN MEETING IN FOCUS The Japanese currency tumbled after the Liberal Democratic Party surged back to power in an election on Sunday, fuelling expectations the new government will drive the Bank of Japan towards more aggressive monetary easing. The dollar was last up 0.3 percent at 84.14 yen after hitting a session peak of 84.20 and not far from a high of 84.48 yen on Monday, which was its strongest since April 2011. T r aders cited option barriers at 84.50 yen with stop-loss buy orders above that level. "The outlook for more political pressure on the Japanese central bank is decidedly negative for the yen," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "However, having shed over five percent of its value against the dollar in the last month alone, the yen may be poised for a bit of a bounce." Analysts said a recovery in the yen could happen if the BoJ disappoints those expecting more aggressive monetary easing. The bank holds a two-day policy meeting Wednesday and Thursday. Speculators have sold the yen on expectations the BoJ could adopt a more aggressive asset-buying program, but sources familiar with the BoJ's thinking have said the most likely option is for the central bank to increase its asset-buying and lending program, currently at 91 trillion yen, by 5-10 trillion yen. That would fall short of expectations and could lead some investors to shed large short positions in the Japanese currency.