* Euro near 3-month low vs dollar as Cyprus worries remain
* Not clear if Nicosia will endorses bailout deal
* Limited contagion to other euro zone countries so far
* Euro/dollar supported above 200-day average
By Hideyuki Sano
TOKYO, March 19 The euro licked wounds near
three-month lows versus the dollar on Tuesday after a plan to
tax bank accounts in Cyprus to help pay for the country's
bailout stoked worries it could threaten the stability of
financial institutions in the euro zone.
Asian investors were relieved to see limited fallout from
the Cyprus deal on other euro zone countries so far, with the
uptick in Spanish and Italian debt yields contained. However,
analysts were guarded about the near term.
"Looking at European and U.S. markets yesterday, the injury
seems to be shallow. But it will be premature to say it will
cure in just two days," said Daisuke Uno, chief strategist at
Sumitomo Mitsui Bank.
The euro traded at $1.2945, off a three-month low of
$1.2882 hit on Monday, with its 200-day moving average of
$1.2875 on Tuesday serving as a strong support.
Against sterling, the euro stood at 85.75 pence,
near a five-week low of 85.34 pence hit on Monday. On the yen,
the common currency traded at 123.47 yen, having
recovered from Monday's low of 121.585 yen.
The euro recouped some of the losses in late Monday U.S.
trade after euro zone ministers urged Cyprus to let smaller
savers escape a levy on bank deposits.
However, it's still not clear if the Cypriot parliament will
endorse the plan needed to secure financial rescue or reject it,
threatening a default.
The parliamentary speaker said debate on the bank levy would
be delayed until 1600 GMT on Tuesday.
As Nicosia extends the bank holiday until Thursday to avert
panic, market players also pondered whether savers in larger
European countries will become nervous and start withdrawing
funds, although there was no immediate sign of that on Monday.
Analysts at Barclays say they see limited risk of contagion
to other countries.
"We consider that the scope of potential contagion to other
peripheral countries in terms of deposit outflows and sovereign
debt is considerably more limited than if such a decision would
have been taken in previous programmes. Specifically, we
consider the likelihood of a bank run in other periphery
countries to be limited, including in Greece," they wrote.
European officials have said the measure is a one-off for a
country that accounts for just 0.2 percent of European output
and has a banking sector that dwarfs the size of its economy due
to huge non-residents' savings lured by lax anti-money
The radical step on deposits had limited impact on Spanish
and Italian debt on Monday. Their yield rose but stayed well
within their recent ranges.
The euro's fall also helped the dollar index edge
near seven-month high hit last week. The index, which measures
the dollar's value against six major currencies, stood at
82.726, flat on the day and not far from the high of 83.166.
Against the yen, the dollar fetched 95.33 yen up
slightly from late U.S. levels and off Monday's low of 94.08
yen, which was underpinned by safe-haven demand on concerns over
developments in Cyprus.
The pair is not far from 3 1/2-year high of 96.71 yen,
though traders are cautious about testing that level before
the outcome of the U.S. Federal Reserve's two-day policy meeting
starting on Tuesday.