* Euro steady after hitting a seven-week low
* Italy political gridlock sends borrowing costs higher
* Fed's Bernanke strongly defends bond buying program
* U.S. housing and confidence data reflect strength
By Daniel Bases and Julie Haviv
NEW YORK, Feb 26 The euro traded flat against
the U.S. dollar and yen on Tuesday, recouping early losses with
the help of U.S. central bank assurances that a bond-buying
stimulus program will remain in place, limiting the
attractiveness of holding the greenback.
Political gridlock in Italy, the euro zone's third-largest
economy, following an inconclusive election is expected to keep
the euro's short-term gains in check. This could prove only a
temporary reprieve to the currency, which hit a seven-week low
U.S. Federal Reserve Chairman Ben Bernanke adamantly
defended the economy-boosting benefits of an $85 billion per
month bond-buying program in testimony to the U.S. Congress.
The dollar recouped its losses against the yen in a late day
rally, helped by a rebound in U.S. Treasury yields following a
steep drop on Monday due to the Italian election turmoil.
"Yields do have a strong impact on dollar/yen and support
the move higher," said Eric Viloria, senior currency strategist
Viloria noted that Italy's political turmoil is a major
concern in the market. Wednesday's scheduled auction of 6.5
billion euros worth of five- and 10-year bonds in Italy could
prove a crucial element in determining investor
The Italian stock market plunged while state borrowing costs
rose after a stunning election in which a comedian's protest
party led the poll and no group secured a clear majority in
parliament. Euro zone shares sank to three-month lows.
Any coalition administration that may be formed must have a
working majority in both houses in order to pass legislation.
"The bad part of the results is that there is now a 'hung
parliament,' or divided government," said Christopher Vecchio,
currency analyst at DailyFX, in New York. "The lower and upper
houses of parliament share power; thus, when each branch breaks
into different ideological directions, the country is
essentially at an ungovernable impasse."
The euro last traded at $1.3058, down 0.02 percent on
the day. During early London trade, the euro touched $1.3017,
its weakest since Jan. 7.
"For the euro, the focus is on the 2013 lows below $1.30,
and events in Italy show that politicians are pushing back at
fiscal austerity measures," said Paul Robson, currency
strategist at RBS. "It is negative for the euro, and until it
remains below $1.3170, it will remain a sell on rallies."
Against the yen, the euro reversed its course as well,
finishing the day in the 120.20 yen area, up 0.27
percent. It had been trading near Monday's one-month low of
118.86 yen when it posted its single biggest percentage loss
since early May 2011.
Despite its spurt higher in afternoon New York trade, the
euro has been steadily losing ground. It is off a 15-month high
against the dollar and a near three-year high against the yen.
That is a swift turnaround from the start of 2013, when the euro
rallied on hopes the worst of the euro zone debt crisis was
Bernanke strongly defended the U.S. central bank's
bond-buying stimulus, saying its benefits clearly exceed
He also urged lawmakers to avoid the sharp spending cuts set
to take effect on Friday, which he warned could combine with
earlier tax increases to create a "significant headwind" for the
The dollar last traded at 91.89 yen, up 0.10 percent
on the day and not far from 90.92 yen on Monday, its lowest in
nearly a month.
The focus on Italy temporarily took a backseat to U.S.
U.S. home prices closed out 2012 with the biggest annual
gain in more than six years, according to the S&P/Case Shiller
index, while government data showed sales of new homes spiked in
January, the latest sign that the long-suffering housing market
was on the mend.
Consumer confidence rose more than expected this month as
Americans shrugged off worries about fiscal policy.