* Euro rebounds from four-month low vs dollar
* Cypriot banks open amidst tight capital control measures
* Italy's funding costs rise as political worries persist
* Yen slide loses downward momentum before BOJ meeting
By Daniel Bases and Julie Haviv
NEW YORK, March 28 The euro rose against the
dollar on Thursday, a day after hitting a four-month low, but
analysts called the rebound tenuous because investors remained
nervous about the Cyprus crisis and Italy's political gridlock.
Month- and quarter-end positioning buoyed the euro, with
investors covering bets against the currency as Cypriot banks
re-opened for business for the first time in two weeks under
tight controls to prevent a run on deposits.
Although these measures prevented a rush of flows out of
banks, some analysts said curbing the free flow of cash in
Cyprus was bad for the euro zone.
Cross-asset support, such as the near-record high in the
benchmark S&P 500 stock index, helped the greenback from
sinking even lower after weak U.S. economic data, including a
rise in weekly jobless claims and a pullback in the pace of
growth in business activity in the nation's heartland, said one
"We didn't see a bigger correction today because the stock
market has been holding up so well," said David Woo, head of
global rates and currencies at Bank of America Merrill Lynch in
Data also showed the U.S. economy expanded at a sluggish
pace in the fourth quarter, although a big gain in business
investment and higher exports of services led the government to
push up its previous estimate for growth.
Woo says he expects more weak economic data to confirm a
"more significant slowdown."
"I think the euro/yen is a better trade that the
euro/dollar. Sell the euro and buy the yen," Woo said.
"I just think euro/yen is a more all encompassing trade. ...
When the U.S. doesn't do well, Japan, as a safe haven, is going
to do better than Europe," he said.
The euro was poised to end the first quarter notching a
roughly 2.8 percent loss against the dollar, its first quarterly
decline since the second quarter of 2012.
The single currency shared by 17 countries was also
positioned to show a drop of about 1.8 percent for March, its
second straight monthly loss.
Investors feared the deal in Cyprus, which caused huge
losses for depositors and private bondholders instead of
taxpayers, could be a blueprint for future bank bailouts for
other euro zone countries.
Capital controls are a historic and negative event that
shifts the fundamental core of Europe's economic and monetary
union, according to Camilla Sutton, chief currency strategist at
Scotiabank in Toronto.
Support for the euro heading into the long Easter holiday
weekend is expected to be fleeting, Sutton said.
U.S. financial markets will be closed on Friday in
observance of the Good Friday holiday.
The euro last traded up 0.33 percent at $1.2823,
above the four-month low of $1.2750 hit on Wednesday. Traders
said month-end demand from investors rebalancing their bonds and
stocks portfolio offered the euro support, but a bounce toward
Wednesday's high of $1.2867 could bring fresh selling.
Apart from worries in Cyprus, political confusion in Italy
pushed up borrowing costs on Wednesday, hurting the euro.
Italy's center-left alliance made a last-ditch appeal to
other parties on Thursday to clear the way for a new government
before its leader, Pier Luigi Bersani, reports back to President
Giorgio Napolitano later in the day.
UPCOMING BANK OF JAPAN MEETING EYED
The euro, unchanged against the yen at 120.69
yen, recovered slightly from a one-month low of 119.71 hit
earlier in the day.
The dollar was poised to notch around a 8.5 percent rise
against the yen in the first quarter and about a 1.7 percent
gain in March, , marking its sixth straight monthly gain.
The dollar last traded at 94.12 yen, down 0.33
percent on the day, according to Reuters data.
The yen was supported on talk of repatriation flows by
Japanese investors before the end of the financial year on March
That gave the currency a reprieve after it saw a period of
sustained weakening due to expectations - now heavily priced in
- of aggressive monetary easing by the Bank of Japan at new
Governor Haruhiko Kuroda's first policy review on April 3-4.
With expectations high of forceful easing from the Bank of
Japan, the yen could gain should the BoJ disappoint.
More aggressive investment in Japanese government bonds with
longer maturities is well anticipated by the market and the
elimination of the banknote rule may not be a significant
positive surprise at this point, according to Jens Nordvig,
global head of FX strategy, at Nomura Securities in New York.
"Thus, we judge huge positive surprises from the BOJ next
week are getting less likely," he said. "Even though the policy
meeting next week may invite profit taking by investors who have
already elevated expectations for the BOJ, bolder policy
responses from the BOJ next week can sustain the gradual rise of
the dollar versus the yen."