* Euro recovers from 2-month low vs yen, 1-1/2 yr low vs
* Euro tech support at $1.2955
* Spanish bonds in focus, yields jump above 6 percent
* China yuan band widening having minimal impact
NEW YORK, April 16 The euro rallied on Monday,
recovering from multi-month lows against the dollar and yen and
a 1-1/2 year low against sterling in largely technical trading
after it held key support levels ahead of a Spanish debt auction
later this week.
An early rise in Spanish government bond yields raised fresh
concerns about the euro zone economic outlook and sent the euro
down broadly, but its $1.2293 trough against the dollar was far
above near-term support at $1.2955.
That prompted traders who had been betting against the euro
to buy and reduce losses. As the buying momentum accelerated, it
fed on itself, prompting more buying that either pushed the euro
higher or pared its losses in most cross-trading pairs.
But investors cautioned against reading too much into
Monday's move, given the uncertainty about the ongoing European
debt crisis and economic outlook for the euro zone.
"A further spike in Madrid borrowing costs would increase
pressure on the European Central Bank to get involved to stem
the tumult," said Joe Manimbo, senior market analyst at Western
Union Business Solutions in Washington. "The euro would be
vulnerable to further losses if Madrid fails to put a halt to
the steady erosion in market confidence in its ability to manage
its massive load of debt."
In late afternoon New York trading, the euro last
traded up 0.5 percent against the dollar at $1.3137, after
climbing as high as $1.3147.
Earlier, it dropped to a two-month trough of $1.2993 and
below reported options barriers at $1.30.
But it avoided stop-loss euro sell orders reported below
$1.2970 and maintained near-term support at $1.2955, around the
61.8 percent retracement of the euro's climb from the January
low to the February peak.
Spain's 10-year government bond yields rose above 6 percent
for the first time this year as investors worried about the
country's ability to contain its budget deficit, and the cost of
insuring its debt hit a record high.
That prompted the early euro selloff against all major
currencies. Yet even as it sold, some strategists were
forecasting the rapid appearance of buyers below $1.30, saying
the euro was unlikely to test the January 2012 low this week.
News that ratings agency Fitch is not currently considering
any action on Italy, the euro zone's third-largest economy and
one of key concern because of its debt load, also helped the
euro cut losses. Fitch said Italy's budget measures are
"credible" and consistent with a gradual reduction of its debt.
Investors will now focus on Spain's auction of two-year and
10-year bonds on Thursday after it sells short-dated bills on
Tuesday. Any sign of 10-year yields heading closer to the 7
percent level that is regarded as unsustainable could prompt
further euro weakness.
"We're also in the midst of a global slowdown and that's
affecting the euro," said Sebastien Galy, senior currency
strategist at Societe Generale in New York. He added that in a
global slowdown, those affected are countries with huge fiscal
deficits because that increases the pressure for more monetary
SOLID U.S. RETAIL SALES
The dollar fell against the yen, falling to 80.31
yen, its lowest since Feb. 29. It was last at 80.46 yen, down
0.5 percent, trimming some losses after the U.S. Commerce
Department reported that retail sales rose 0.8 percent in March,
more than expected, despite high gasoline prices.
"It's a clear sign that U.S. consumer spending remains
strong," said Omer Esiner, chief market analyst at Commonwealth
Foreign Exchange in Washington, noting that all the components
of the retail sales data far exceeded market expectations.
"On balance I think it's the latest sign that the U.S.
economy is outpacing a lot of its major counterparts," he added.
The euro also fell against the yen to a two-month low of
104.61 and was last at 105.70 yen, down 0.1 percent.
Against sterling, the euro fell to 82.05 pence, its
lowest level since September 2010. But late in New York it had
recovered to trade 0.2 percent higher at 82.65 pence.
Commodity currencies were under pressure as well, with the
Australian dollar falling for a second straight trading day. It
was last at US$1.0356, while the New Zealand dollar
was down 0.1 percent at US$0.8206.
News over the weekend that China had doubled the yuan's
daily trading band against the dollar to 1 percent had limited
impact on major currencies. Some analysts said Beijing's
decision could eventually be positive for risk sentiment, as
Chinese authorities would not push ahead with such financial
reforms if they were not confident of avoiding a hard economic
Overall, the move was seen as unlikely to alter market
expectations of gradual yuan appreciation of around 2 to 3
percent this year. The yuan weakened on the first day of trading
after the wider band was adopted.