* Euro extends gains vs dollar after Greek bond buyback
* Dollar weakness persists across the board
* Deadlock on U.S. fiscal issue resolution weighs
* Yen recovers after recent slide
By Anooja Debnath
LONDON, Dec 4 The euro extended gains on Tuesday
on expectations a buyback of Greek bonds would go smoothly and
as borrowing costs for indebted euro zone countries fell.
The euro could see more gains if Spanish and Italian bond
yields, which also fell in anticipation of Greece securing more
aid money after the buyback, fell further, analysts said.
Concerns U.S. budget talks may be stalling weighed on the
dollar and helped push it lower against the euro and to a
one-month low against a basket of currencies.
The euro rose 0.2 percent to $1.3082, its highest
since Oct. 22, but stalled before a reported options barrier at
If it breaks above $1.3100 traders said it could rise
further as stop loss buy orders are triggered, though it would
face chart resistance at the October high of $1.3140.
"The euro is gaining a bit of support as the news from the
euro zone has been better over the past couple of days," said
Ian Stannard, head of European FX strategy at Morgan Stanley.
"The market is taking a fairly optimistic view that we will
see a smooth implementation of these (Greek) plans."
He expected the euro to hold firm until the end of the year
but warned it could come under selling pressure in 2013 due to
the deterioration in the broader euro zone economy.
Morgan Stanley recommend clients enter a long euro/dollar
position at $1.3050, with a target of $1.34.
Greece's buyback offer on Monday topped market expectations
and improved its chances of cutting its ballooning debt and
receiving long-delayed aid.
The buyback is part of a deal reached last week by Greece's
international lenders to cut its debt and needs to be completed
before the IMF can release its share of the aid.
Meanwhile, worries over efforts to avert the U.S. "fiscal
cliff" hobbled the dollar despite its reputation as a refuge in
times of uncertainty. Analysts said the dollar had stayed weak
because of relatively positive developments in the euro zone.
The dollar fell to a one-month low against a basket of
currencies, with its index dropping to 79.706.
The White House dismissed Republican proposals for steep
spending cuts late on Monday, heightening concern lawmakers will
not reach a deal in time to avert $600 billion in automatic
budget measures due in early 2013.
"At the moment the market is ... likely expecting a last
minute fudge maybe with some delays and some temporary measures
to tide them over to next year," Morgan Stanley's Stannard said.
Elsewhere, the Swiss franc weakened, extending Monday's
falls when Switzerland's largest banks said they would charge
for some franc deposits. This pushed the euro to
1.21455 francs, its highest since mid-September.
The dollar shed 0.3 percent to 81.95 yen, further
from a 7-1/2 month high of 82.84 yen hit last month.
The yen has recovered from a recent slide sparked by the
prospect of more monetary easing by the Bank of Japan after a
Dec. 16 election, with some investors thinking there may be
little scope for further falls.
"We saw an incredible amount of yen weakness in November and
this is running out of steam simply because we don't see any
additional news flows out of Japan," said Ulrich Leuchtmann,
head of FX research at Commerzbank.
"People want to wait until the elections are over and see
what the new government is really going to do."
The euro slipped 0.1 percent to 107.21 yen, off
Monday's seven-month high of 107.67 yen.