(Updates prices, adds quote)
* Spain EconMin: No plans for 2 trln euro bailout fund
* Resistance seen at $1.3580, traders inclined to sell
* Wariness about Japan intervention keeps yen in check
By Jessica Mortimer
LONDON, Sept 27 The euro steadied against the
dollar on Tuesday, but sentiment was fragile after comments by
Spain's economy minister who tempered expectations of a radical
and swift action by European policymakers to contain the
worsening debt crisis.
The single currency had gained earlier on talk policymakers
were planning to boost the regional rescue fund, halve Greece's
debts and recapitalise banks, all of which encouraged
profit-taking on short positions after Monday's fall below
But the bounce proved short-lived, as Spanish minister Elena
Salgado said plans to extend the region's EFSF bailout fund to 2
trillion euros were not on the table.
The euro was last flat on the day against the dollar
at $1.3540, above an eight-month low of $1.3360 but staying
vulnerable to further falls back towards this trough.
"Salgado poured cold water on the optimism that we saw first
thing this morning," said Ian Stannard, head of European
currency strategy at Morgan Stanley.
"The market took some relief from reports that European
authorities were looking at leveraging up the EFSF, but the
reaction (to Salgado) highlights just how fragile that recovery
Oscillators such as the relative strength index suggested
the euro may be near oversold territory, while traders said
investors were still looking to sell the euro on any rally.
Resistance loomed at $1.3580, a 38.2 percent retracement of
its Sept. 15-26 decline, while traders reported offers above
$1.3550 and more above $1.3570.
But some traders also said with many in the market short of
the euro, stop loss orders could be triggered above $1.3590 as
investors take profit on those positions.
"A lot of investors are looking to reset new short euro
positions around $1.36," said Niels Christensen, currency
strategist at Nordea in Copenhagen.
The strategy to sell into a bounce in the euro was
widespread as doubts persisted over policymakers' ability to
craft a plan quickly to deal with the escalating crisis.
ECB Board member Lorenzo Bini Smaghi said on Monday the
existing 440 billion euros in the bailout fund, known as the
European Financial Stability Facility (EFSF), might be used as
collateral to borrow from the European Central Bank, which would
make more money available for crisis-fighting. .
Austrian Finance Minister Maria Fekter said euro zone
officials are set to discuss next Monday plans to leverage the
"The exact terms and the speed at which action could be
taken remains uncertain," said Alain Bokobza, head of asset
allocation at Societe Generale.
"The latest proposal leveraging the EFSF to boost its
firepower to at least one trillion euro is still too hazy to
lastingly reverse market sentiment in our view."
Growing expectations that the European Central Bank could
cut interest rates were also expected to weigh on the euro. Some
ECB officials said on Monday that cuts could not be ruled out.
Higher-risk growth-linked currencies rebounded after a
recent sharp sell-off, helped by firmer equities, with the
Aussie up 0.65 percent against the U.S. dollar at
$0.9905 and the Kiwi up nearly 1 percent.
YEN STILL STRONG
The dollar traded at 76.40 yen , hovering close to
record lows around 75.94 yen and keeping alive concerns that
Japan could intervene again to stem its currency's gains. The
yen has strengthened nearly 6 percent so far this year.
Early on Tuesday, Japan's government said it wanted to bring
forward steps to ease the pain some companies feel from a
stronger yen and enact the measures before it completes an extra
budget to fund reconstruction spending.
"The yen is at levels where you can expect the Bank of Japan
to come in. They won't like dollar/yen below 76, so they will be
very much on alert," Nordea's Christensen said.
The euro stood at 103.52 yen , having bounced from
a fresh decade low of 101.95 yen hit on Monday, weathering some
month-end selling from Japanese exporters.
This week the euro zone faces plenty of hurdles, including
votes this week in Finland and Germany on existing plans to
revamp the EFSF structure. The Greek government votes on Tuesday
on new austerity measures needed to secure aid.
The dollar index edged down 0.35 percent to 78.076,
off an eight-month peak of 78.863.
(additional reporting by Anirban Nag; Editing by Stephen