FOREX-Euro off 8-mth highs, dollar still defensive as US woes hamper
* Euro falls from 8-month high, helps lift dollar index
* Markets hoping U.S. govt shutdown will be temporary
* No non-farm payrolls on Friday if shutdown continues
* ECB meeting next in focus
By Ian Chua
SYDNEY, Oct 2 (Reuters) - The euro struggled in Asia on Wednesday having suffered a turnaround from an 8-month high, helping lift the dollar index in a market made cautious by the first U.S. government shutdown in almost two decades.
While global financial markets appeared hopeful that the partial shutdown will be short-lived, the immediate impact for investors is a drop off in U.S. economic data-flow at a time when markets are using them to gauge if the Federal Reserve will soon scale back stimulus.
The U.S. Bureau of Labor Statistics, which was scheduled to publish the closely watched non-farm payrolls report on Friday, said it would not issue anything until government operations resumed.
Not surprisingly, investors are reluctant to take big positions, making for a volatile session as was seen in the euro.
The common currency hit an 8-month high of $1.3589 in European trade on Tuesday, breaking out of a range roughly between $1.3462 and $1.3569 seen since Sept. 19.
But it lost steam following an unexpected rise in German unemployment. Traders said further pressure came as leveraged players turned sellers, and the euro erased all of its earlier gains. It last stood at $1.3520.
That helped lift the dollar index from a near eight-month low. Traders said the greenback was also aided by an industry report that showed the U.S. manufacturing sector expanded at its fastest pace in almost 2-1/2 years in September.
Analysts at BNP Paribas said the dollar is likely to trade defensively until the U.S. congressional deadlock is resolved.
"At the same time, we wouldn't overstate the USD's vulnerability," they wrote in a client note.
They added that their analysis suggested that the market is no longer holding long dollar positions and the possibility of an end to the shutdown meant investors will be reluctant to get too bearish on the dollar.
Against the yen, the euro traded at 132.56, down from Tuesday's high of 133.47. The dollar also eased to 98.03 yen from 98.73.
A standout currency was the Australian dollar, which outperformed broadly after the Reserve Bank of Australia wrong footed some players by not giving a clear signal that it will ease rates in the future following its policy meeting on Tuesday.
The Aussie last stood at $0.9390, having climbed nearly 1 percent to a 1-1/2 week high of $0.9435. Immediate resistance is seen at the session peak, which is also the 61.8 percent retracement level of its Sept. 18 to 30 fall.
With little in the way of major economic data in Asia on Wednesday, the major currencies may find themselves stuck in a range until Europe opens.
The key focus will be the European Central Bank's policy meeting although the bank is widely expected to stick to its policy course, while keeping a wary eye on developments in the region, not least the political turmoil in Italy.
Prime Minister Enrico Letta will call for a confidence vote on Wednesday. Encouragingly, senior party figures in Silvio Berlusconi's fractious centre-right movement urged Italian lawmakers to defy the billionaire media tycoon and back Letta.
But even if Letta's government survives the vote, there is no certainty that his administration will be strong enough to enact effective reforms to confront its longest postwar recession.
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