* Dollar index holds near 1-month high
* Euro vulnerable to more falls if breaks below $1.28
* Draghi warns euro zone faces long road to recovery
By Wanfeng Zhou
NEW YORK, Oct 10 The euro was little changed on
Wednesday against the dollar, stabilizing after a fall in the
previous day, as traders waited for direction on whether and
when debt-ridden Spain would ask for a bailout.
European Union leaders are scheduled to meet at the end of
next week. Euro zone finance ministers delivered a united
defense of Spain at a meeting this week, saying the country did
not need a bailout, at least for now.
"We are in a holding pattern," said John Doyle, currency
strategist at Tempus Consulting in Washington. "What we're going
to look for the rest of the day and probably next week and a
half is if there's any news coming out of Spain and possible
decision on a full bailout or not."
The euro was little changed at $1.2892, erasing the
losses which had taken it to session low of $1.2833 on Reuters
data, the weakest since Oct. 1.
A Spanish bailout deal is seen by most traders as positive
for the euro because it would activate the European Central
Bank's bond-buying program. The mechanism is aimed at reducing
borrowing costs for debt-ridden countries, thus easing the euro
zone's financial crisis.
The euro has rallied 7 percent since hitting a two-year low
of $1.2040 in late July after the European Central Bank head
Mario Draghi pledged to do whatever it takes to preserve the
"The market had factored in that the ECB had gone to all
these lengths to resurrect the bond-buying plan with Spain in
mind, and Spain just hasn't taken the bait as yet," Standard
Bank's head of G10 currency research Steve Barrow said.
"If Spain had made that request when the euro was strong and
bond yields had already come down quite a bit, positive momentum
could have pushed the euro dollar on to $1.35. The problem now
is that maybe their chance has been missed, and instead perhaps
Spain will now not do anything until yields start to move up."
The euro remained above chart support at its 200-day moving
average of $1.2821 and the Oct. 1 low of $1.2802. A break below
there would leave it vulnerable to more falls.
"The big question is whether euro/dollar can break below
$1.28, which could support momentum to the downside. But this
will be difficult unless we get very negative equity markets,"
said Niels Christensen, currency strategist at Nordea in
Unease over Spain's future, which has pushed investors back
to less risky debt despite the low yields on offer, was
reflected in strong demand in a 3.1 billion euro sale of
five-year German bonds, which are seen as a safe haven
investment, on Wednesday.
Draghi said the region faced a long road to recovery,
despite the ECB's plan to buy the bonds of indebted euro zone
countries, and that there was no alternative to budget
Investors are also fretting about whether Greece will agree
terms with its international lenders for the next tranche of
funds needed to keep the country afloat.
German newspapers attacked "ungrateful" Greeks for the
hostile public reception they gave Angela Merkel in Athens and
some criticised the Chancellor's generosity for promising they
would stay in the euro zone.
Merkel reaffirmed her commitment to keeping Greece in the
euro, but offered Prime Minister Antonis Samaras no concrete
relief ahead of a report next month by the "troika" of
international creditors on Greece's progress on savings targets.
The dollar index was up 0.1 percent at 80.010, having
earlier hit 80.186, its strongest since Sept. 11.
The Australian dollar meanwhile rose after a successful sale
of Australian long-dated bonds boosted demand. It was last up
0.3 percent against the U.S. dollar at $1.0232.