* Euro slips, 10-yr Spanish bonds yields trade near 6 pct
* German ZEW slightly better than expected
* Speculation BOJ may ease policy seen weighing on yen
By Nia Williams
LONDON, Sept 18 The euro fell on Tuesday,
succumbing to profit taking after rallying to four-month highs
against the dollar and yen a day earlier, with Spain's apparent
reluctance to seek a bailout unnerving investors.
The yen also ceded ground against the dollar on speculation
the Bank of Japan might loosen policy after the U.S. Federal
Reserve launched a fresh round of monetary stimulus last week.
Market players said rising bond yields in Spain, which
hovered around 6 percent on 10-year debt, also weighed on market
sentiment and added to pressure on the euro.
"If Spain steps forward (to ask for a bailout) and all of us
get some clarity it would remove an element of uncertainty,"
said Derek Halpenny, European head of FX research in London.
"The longer we remain in this scenario the more likelihood
is investor confidence will ebb away."
The single currency fell 0.5 percent to $1.3054,
having hit $1.3173 hit on Monday, its highest since May 4.
Traders said option barriers at $1.3200 appeared safe for now.
The euro has rallied about 9 percent from a two-year low of
$1.2042 in July when investors were worried the currency bloc
might be heading for a break-up as Spanish and Italian borrowing
Optimism the European Central Bank's new bond buying scheme
will help Madrid weather the debt crisis helped lift the euro,
although uncertainty over whether Spain will seek a bailout
tempered recent positive sentiment.
In a television interview on Tuesday, Spain's Deputy Prime
Minister said the country was still considering the conditions
of a possible bailout.
A slightly better-than-expected German analyst and investor
sentiment survey that rose in September after four months of
decline, failed to lift the single currency.
The euro also fell 0.5 percent against the yen to trade at
102.69 yen, having rallied to a four-month high of
103.858 yen on Monday.
The dollar traded at 78.61 yen, having risen as high
as 78.93 yen on Monday on buying by speculative accounts such as
hedge funds, traders said. It hit a seven-month low of 77.13 yen
just last Thursday.
"There are quite a lot of expectations about the BOJ's
easing priced in now. The dollar/yen is unlikely to fall much
ahead of the outcome of the BOJ's policy meeting," said a senior
trader at a European bank, referring to the bank's two-day
meeting that started on Tuesday.
The Fed's announcement last week of a new asset-buying
programme has led to speculation the BOJ might also ease policy
to prevent the yen from strengthening.
"We expect the Bank of Japan to increase its asset buying
fund by five trillion yen ($63 billion). If it does, the dollar
might have a chance to break resistance around 79.50 yen.
Alternatively, if it doesn't, the dollar will fall below 78
yen," said Osamu Takashima, chief Japan FX strategist at
A rise in U.S. bond yields after the Fed's action also
supported the dollar. The 10-year yield stood near a
four-month high of 1.89 percent hit on Friday.
Dollar/yen has traditionally been highly correlated with
U.S. yields, partly based on the perception that they should
attract more dollar-buying by Japanese investors.
The Australian dollar traded at $1.0421, pressured
by worries that slower growth in China would put the brakes on
Australia's mining boom.