* S&P cuts Spanish rating to just above junk
* G7 meeting in Tokyo in focus for comments on yen
* Aussie rebounds after Sept jobs data beats forecast
By Jan Harvey
LONDON, Oct 11 The euro rose on Thursday as
buying by sovereign investors helped it recover from losses made
after Standard & Poor's cut Spain's credit rating to just above
Signals from the International Monetary Fund -- which has
talked tough on the euro zone this week -- that some of the
bloc's struggling governments should be given more time to deal
with their problems was also a positive for the euro.
But uncertainty over when Spain would seek a bailout and
fresh concerns over Greece are likely to limit gains. The
Spanish downgrade junk saw the euro fall to its lowest in
more than a week at $1.2825 in Asian trade.
It recovered to $1.2915, 0.3 percent higher on the day,
rising past stop-loss orders above $1.2900 in the European
session. Traders cited support at its 200-day moving average at
$1.28233 with bids from Asian central banks reported at $1.2850.
"For us the $1.2830 level is a very key level and above
$1.3000 we will look to sell," said Stuart Frost, head of
Absolute Returns and Currency at fund managers RWC Partners.
"The market has taken the S&P downgrade in a negative way.
But with implied vols at such low levels, we expect the
euro/dollar to stay in a range in the near term."
Euro/dollar implied volatilities are trading near
their lowest in two years, with the one-month trading at around
8.4 vols. Volatilities, which reflect swings in financial asset
prices, have been subdued for most of the year partly due to the
aggressive flood of money from major central banks.
Investors have been on tenterhooks since the European
Central Bank laid out a plan to buy the debt of countries like
Spain last month that requires governments to first request aid.
Once Spain requests a bailout, the euro is likely to get a
boost. But until that happens, the single currency is more
likely to cede ground especially if pressure on peripheral bonds
increases in the coming days.
Italy sold 6 billion euros of bonds at auction, paying a
higher price to sell three-year debt than a month ago but still
finding solid demand.
Earlier, IMF chief Christine Lagarde said heavily indebted
European countries such as Greece and Spain should be given more
time to cut their budget deficits.
"It takes away some of the tail risk attached to the euro
that even the IMF is ready to give them a bit more time," said
Arne Lohmann Rasmussen, head of currency research at Danske
Bank. "That's one of the reasons why we like to buy the euro on
Against the yen, the euro was up 0.6 percent at
101.20 yen, having earlier hit a ten-day low of 100.16 yen. Near
term support is seen at 99.64 yen, the low struck on Sept. 27.
Speculation continued that the Bank of Japan may be set to
take action to curb yen strength. BoJ Governor Masaaki Shirakawa
said he will discuss the yen during talks on Japan's economic
outlook at Wednesday's G7 meeting in Tokyo.
"There's a lot of speculation over whether the Bank of Japan
is moving in a more aggressive direction," Rasmussen said.
"They haven't been able to catch up with the Fed lately, in
our opinion, so any comments from Japan on how they look at this
issue could be attracting some attention in the market."
The Australian dollar reversed earlier losses and
climbed to its highest since Oct. 2 at $1.0294, after the
country's employment rose more than expected.
Meanwhile, the Swedish crown fell to a three-month low
against the euro after Swedish inflation data came
in below expectations, supporting expectations a rate cut could