* Euro under pressure but stays above 11-month low
* Investors await EU finmin call at 1430 GMT
* Euro hurt by European ratings downgrade fears
By Lisa Twaronite
TOKYO, Dec 19 The dollar held some of the
gains it made on Monday as it spiked higher on safe-haven bids
following news of the death of North Korean leader Kim Jong-il.
North Korean state television reported the demise of the
leader of the reclusive nation, with aspirations to be a
nuclear-armed power, which had begun the process of transferring
power to his son Kim Jong-un. The older Kim was said to have
suffered a heart attack on a train on Saturday.
Against its Japanese counterpart, the dollar bought 77.94
yen, after spiking to a session high of 78.18 yen from around
77.86 yen shortly before the news of Kim's death. The
dollar index was at 80.430, after rising as high as
80.493 from 80.303 before the news.
"Risk proxies are selling off, and forex is taking the lead
from equities markets," said Sue Trinh, senior currency
strategist at Royal Bank of Canada in Hong Kong.
"He died of natural causes on a train rather than from
anything that sounds dodgy, but risk currencies are selling off
on the political uncertainty. Still, the moves look a bit wrong
and overdone, and I would expect a bit of retracement later,"
The Australian dollar bought $0.9930, after easing
to $0.9902 from $0.9922 shortly before the news. It dropped from
$0.9987 in late New York trade on Friday.
The Aussie lost 2 percent last week but did manage to bounce
from lows around $0.9862, with support seen around that level
with resistance at $1.0052.
"In light of uncertainties about what would follow after his
death and what implications it would have on Asia, the initial
reaction is to seek a safe haven in the dollar, which is a key
global settlement currency," said Takao Hattori, senior
investment strategist at Mitsubishi UFJ Morgan Stanley
Securities in Tokyo.
The euro, hurt by fears of European sovereign ratings
downgrades, remained under pressure after its worst weekly
performance in three months.
"The market was leaning towards dollar buying seasonally,
with the year-end and also with the European crisis, and this
preference for the dollar will strengthen further," Hattori
The single currency stood at $1.3013, down from a
high of $1.3049 hit early in the Asian session and approaching
an 11-month low of $1.2944 marked last week.
In addition to following any updates on the North Korean
leadership, investors will also focus on a euro zone finance
ministers teleconference call from 1430 GMT about the draft text
of a new fiscal compact agreed earlier this month. Talks will
also include the size of individual bilateral loans to the
International Monetary Fund.
Short-covering could also underpin the currency. IMM data
released on Friday showed net short positions in the euro
against the dollar totalled 116,457 as of Dec. 13, following a
disappointing EU Summit.
"With such large short positions, it's very possible that
the euro could get a brief lift on short-covering in thin
conditions ahead of the end of the year, even though pressure
remains from the downgrade concerns," said Koji Fukaya, chief
currency analyst at Credit Suisse in Tokyo.
Resistance lies at $1.3090, which would be a 50 percent
retracement of its recent move from $1.3236 to $1.2944. Another
key barrier lies at $1.3125-45.
Any sign of improving credit conditions in the euro zone
would also provide support for the single currency.
The European Central Bank is preparing this week to prop up
euro zone lenders with three-year low-price loans to revive the
struggling interbank lending and funding market.
Banks could take an estimated 250 billion euros ($326
billion) at the first auction of the three-year loans on
Wednesday. Some hope the banks will use the funds to buy EU
sovereign debt and pull yields down.
But the euro remains highly vulnerable to more EU ratings
downgrades as France faces up to a double-notch cut by Standard
& Poor's, which put a raft of European nations on review earlier
Investors are already positioning for the worst, traders
"As soon as the announcement comes out, there will be a
short-term negative impact but it's all baked in the cake for
Europe," said David Scutt, a trader at Arab Bank Australia.
Some analysts say the European unit has even more room to
fall next year.
Nomura Securities recommends booking profits for now, in the
wake of the euro's 3 percent drop last week, solid bond auctions
in Italy and Spain and a narrowing in spreads on the bonds of
Belgium and France, but it forecasts the euro will fall as low
as $1.2000 by the end of the first quarter of 2012.
On Friday, Moody's cut Belgium by two notches to Aa3 from
Aa1, citing risks to economic growth and the costs of bailouts
of banks such as Dexia.
This came in addition to Fitch's warning it could downgrade
France and six other euro zone countries as it believes that a
comprehensive solution to the region's debt crisis is
"technically and politically beyond reach".