* Euro rises more than 1 percent vs yen
* Euro uptrend seen intact, traders look to buy on dips
* Euro lifted by above-forecast euro zone services PMI
* Yen hits fresh 2-1/2-year high vs dollar
NEW YORK, Feb 5 The euro rallied strongly
against the dollar and yen on Tuesday as better-than-expected
euro zone data bolstered expectations the European Central Bank
will keep policy steady when it meets this week.
The rally in the single currency gained momentum during the
New York session as investors positioned for the ECB meeting,
pushing the euro's gains against the dollar for the year up to 3
French President Francois Hollande called on the euro zone
on Tuesday to protect the currency from "irrational movements",
but German Economy Minister Philipp Roesler said countries must
focus on boosting competitiveness and not on cutting the value
of their currency.
The comments did not have an immediate impact on the euro,
but served as an indication of the growing split among leaders
on the euro's strength, which may check further gains even as
investors bought on the upbeat economic data.
Instead, the clear focus remains the meeting of the ECB on
"Should (ECB President Mario) Draghi hold a relatively
upbeat news conference on Thursday that echoes the one he held
last month it will be a green light for the euro to return to
recent highs," said Omer Esiner, chief market analyst at
Commonwealth Foreign Exchange in Washington.
The euro last traded at $1.3587, up 0.5 percent on the day
and near the session peak at $1.3597, but below a near 15-month
high of $1.3711 struck on Friday. Chart support was seen at
$1.3413, a low hit on January 29.
The ECB is unlikely to contemplate an interest rate cut at
Thursday's policy meeting despite the euro's sharp rise, but its
chief almost certainly faces a grilling afterwards over an
Italian banking scandal.
The euro's strength will need to show significant harm to
the economy before the Governing Council reverses course, and
there is next-to-no chance of that happening at its monthly
meeting, analysts said.
The euro zone economy is probably recovering even as the
gulf between its two biggest members, Germany and France, is
widening, according to a survey on Tuesday that showed business
optimism in the bloc at an eight-month high.
Euro zone data also indicated the services sector had
improved more than expected in January.
Rising risk tolerance also helped the euro in New York trade
when a report showed the U.S. services sector grew in January.
"The economy continues its grudging recovery with services
following manufacturing after the second-half slump last year,"
said Joseph Trevisani, chief market strategist at
WorldWideMarkets, Woodcliff Lake in New Jersey.
Bank of Japan governor Masaaki Shirakawa said he would step
down on March 19, three weeks before the official end of his
term. He is likely to be replaced with someone who is amenable
to Prime Minister Shinzo Abe's drive to ease policy aggressively
and get Japan out of deflation.
"The Bank of Japan is about to get a lot more dovish, and
sooner than previously thought," said Christopher Vecchio,
Currency Analyst at DailyFX in New York.
The dollar rose as high as 93.51 yen, its highest since
mid-2010. It last traded at 93.36 yen, up 1.1 percent on
the day, according to Reuters data.
The euro last traded at 126.84 yen, up 1.6 percent
on the day, with the session peak of 126.90 close to the high
of 126.96 touched last Friday, the highest since mid April,
2010, using Reuters data.
Strategists said further yen weakness could be checked due
to growing opposition from other countries before a G20 meeting
in Moscow later this month.
"Japan could face a growing backlash about its recent
policies, which have produced a sustained yen weakness, and
given that the euro was the currency that appreciated the most,
this could mean the Europeans in particular could complain about
the loss of international competitiveness," said Valentin
Marinov, head of European G10 FX strategy at CitiFX, a division
of Citigroup in London.