FOREX-Euro recovers but gains seen fragile, yen shaky
* Euro steadies, stays above strong chart support at $1.30
* But vulnerable to euro zone growth and rate cut worries
* Yen steadies but any gains seen limited
By Jessica Mortimer
LONDON, April 18 (Reuters) - The euro rose on Thursday, staying above key chart support at $1.30, but remained vulnerable after falls the previous day on talk of more monetary easing by the European Central Bank.
The yen edged lower, with many market participants expecting more weakness ahead as a result of aggressive monetary easing in Japan. Falls were expected to be slow however, as the dollar faced stiff chart resistance before the 100 yen mark.
The euro was up 0.2 percent at $1.3058, regaining support after sliding by 1.1 percent on the previous day, its biggest one-day percentage drop since last June.
It stayed above strong chart support at $1.30, having hit a low just above there on Wednesday at $1.3001.
The euro took a hit on Wednesday after ECB Governing Council member Jens Weidmann was quoted by the Wall Street Journal as saying the bank could ease further if economic data warrants it.
Analysts were sceptical about how negative this would be for the euro. Unlike Japan and the United States the ECB is not printing money via quantitative easing, which tends to weaken the currency. Some also believed a rate cut could be positive for the euro zone growth outlook.
However, worries about euro zone growth and about the potential for a flare-up in the euro zone debt crisis meant any gains for the euro would be limited.
Neil Mellor, currency strategist at Bank of New York Mellon, said the euro had benefited from investors looking for alternative currencies to hold since the Bank of Japan's aggressive monetary easing caused the yen to depreciate.
"In periods of relative stability the euro can become the default option for investors who are looking for deep and liquid markets," he said.
The euro also remained at risk from euro zone troubles, with presidential elections in Italy beginning on Thursday and continued uncertainty over a bailout deal for Cyprus, despite Germany's lower house of parliament voting in favour of it on Thursday.
"I see $1.30 being tested and a potential break lower," Mellor said. He said once the euro made a firm break below $1.30 it could target support around $1.27.
Against the yen, the euro rose 0.5 percent to 128.44 yen, holding below its recent three-year high of 131.11 yen.
YEN STILL SHAKY
The dollar rose 0.3 percent to 98.33 yen, and traders cited supporting bids around 97.60 yen.
The dollar hit a four-year high of 99.95 yen last week, with its rise stalling just short of the psychologically key 100 yen threshold due to options-related dollar offers.
Most market players still see the yen eventually weakening beyond 100 to the dollar, however.
"This is a longer-term move and therefore periods of correction are basically buying opportunities and that's probably what we are in at the moment," said Steve Barrow, head of G10 currency research at Standard Bank, who said 110 yen was a likely target for this year.
The BOJ's radical monetary policy overhaul will pump about $1.4 trillion into the economy in less than two years, via a hefty bond-buying scheme that is expected to drive Japanese investors to look overseas in search of better yields.
Bank of New York Mellon's Mellor said the broad trend for yen weakness could be stalled periodically by Japanese investors "bringing capital home" to cover losses in other assets.
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