(Deletes incorrect reference to dollar's resistance level in
second last paragraph)
* 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
* Dollar/yen up 0.5 pct, Aussie near 5-week high
By Hideyuki Sano
TOKYO, March 19 The euro licked its wounds near
three-month lows versus the dollar on Tuesday, with the plan to
tax Cyprus savings accounts to help fund a bank bailout fuelling
fears for the stability of euro zone financial institutions.
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
heal in just two days," said Daisuke Uno, chief strategist at
Sumitomo Mitsui Bank.
The euro traded at $1.2957, flat from late U.S.
levels and not far from a three-month low of $1.2882 hit on
Monday, with its 200-day moving average of $1.2875 on Tuesday a
But the common currency faces an uphill battle to close the
yawning chart gap between Friday's close of $1.3076 and Monday's
opening at $1.2950.
Against sterling, the euro stood at 85.75 pence,
near a five-week low of 85.34 pence hit on Monday.
The euro recouped some of the losses in late Monday U.S.
trade after euro zone ministers urged Cyprus to let smaller
savers escape the proposed levy on bank deposits.
However, it is 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.
"If the plan is voted down, there will surely be fresh
selling in the euro," said Tohru Sasaki, the head of Japan rates
and FX research at JPMorgan Chase Bank.
Sasaki also noted that euro looks vulnerable as its rebound
overnight was smaller than the currency's rebound after the fall
triggered by a Greek election last May, when investors were
shocked to find the ruling coalition failed to win a majority.
"On Monday after the Greek election, the euro almost fully
recovered from a one-percent loss in Asia. But that turned out
to be a high for many months to come, as the euro kept falling
in the next two months and a half," he said.
STORM IN A TEACUP?
As Nicosia extends the bank holiday until Thursday to avert
panic, market players pondered whether savers in larger European
countries would get nervous and withdraw 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 move on deposits had limited impact on Spanish
and Italian debt on Monday. Their yield rose but stayed well
within their recent ranges.
"Cyprus is a small country and its impact will be limited. I
don't see this leading to a big risk-off moves in markets," said
a trader at a Japanese brokerage.
Indeed, commodity currencies, which took a hit in tandem
with the euro initially, have recouped most of losses, with
Australian dollar trading at $1.0390, not far from
five-week high of $1.0415 hit last week.
As broad risk sentiment turns less sour, the yen also
declined broadly, giving up the gains from Monday's safe-haven
The dollar rose 0.5 percent on the day to 95.70 yen.
The euro also recovered 0.6 percent to 124.04 yen
, though it is still down 0.5 percent from late last
(Reporting by Hideyuki Sano; Editing by Eric Meijer)