* Euro gains after robust German ZEW prove short-lived
* German ZEW unexpectedly soars to highest since April 2010
* Italy election worries weigh on euro
* Yen gains as Aso says not considering foreign bond buying
By Anooja Debnath
LONDON, Feb 19 The euro fell across the board on
Tuesday, giving up its brief gains after better-than-expected
German data, as investors were reluctant to buy the single
currency before Italian elections this weekend.
Prospects of a fragmented parliament after Italy's Feb.
24-25 election which may hamper the country's reform efforts,
kept the euro under selling pressure. Recent data revealing a
deeper-than-forecast euro zone recession has also hurt the euro.
"There is risk aversion for holding net long euro positions
ahead of Italian elections which has important ramifications
across Europe. If there was a loose and erratic coalition, it
would be very negative for euro/dollar," said Peter Frank, FX
strategist at BBVA.
The euro was last down 0.1 percent at $1.3336, having
earlier risen as high as $1.3374 after data showed the ZEW's
index of German analyst and investor sentiment at its highest
since April 2010.
However, the ZEW survey also showed that investor sentiment
on the current state of the German economy was yet to pick up
and the euro's gains proved fleeting, with traders saying
investors were inclined to sell into any rallies.
"The euro did not sustain the upward movement after the ZEW
data because the current conditions index was a
disappointment...if current conditions are deteriorating then
that is not good enough for euro/dollar to rally," BBVA's Frank
However, the euro remained above a three-week low of $1.3306
hit on Friday, with traders reporting bids at $1.3310-15.
Traders also said worries that euro zone officials could
express concerns about the euro's strength could weigh on the
currency after European Central Bank President Mario Draghi said
on Monday the central bank would have to assess the impact of
the euro's appreciation.
The euro was down 0.6 percent against the yen at 124.69 yen
, though it was off an earlier low of 125.45 yen.
The yen rose on Tuesday after Japanese Finance Minister Taro
Aso said he was not considering foreign bond purchases as part
of efforts to ease monetary policy, a day after Prime Minister
Shinzo Abe said this was an option.
But its gains were expected to be limited, with traders and
analysts still expecting the yen to keep falling on expectations
the Bank of Japan will pursue aggressive monetary easing.
"The Aso comments are the reason we have seen the yen
strengthening ... But this is just a consolidation phase and the
general trend for yen weakness will remain," said Antje
Praefcke, currency strategist at Commerzbank in Frankfurt.
The dollar was down 0.5 percent at 93.52 yen, well
below a peak of 94.22 yen hit on Monday after Japan escaped
direct criticism from its G20 peers at the weekend for pursuing
ultra-easy monetary policies that weaken its currency. However,
it remained above chart support at 93.38 yen, the 200-hour
Having risen about 20 percent since mid-November, the dollar
has hesitated to re-test last week's 33-month high of 94.47 yen
when it failed to breach a reported options barrier at 94.50
Praefcke said investors were locking in profits as the
dollar stayed stuck below resistance at 94.50-95.00 yen.
Commerzbank expect the dollar to rise to 100 yen by year-end.
But some strategists said the yen's fall could lose momentum
as investors become wary of betting on further yen weakness
until there is more clarity on the next Bank of Japan governor.
Tokyo has delayed nominating a new governor for its central
bank by a week, fanning talk of friction between the prime
minister and the finance minister on the issue.
The dollar index held firm near a six-week high of 80.727
hit on Monday and was last up 0.1 percent at 80.647. It
faces resistance from its 200-day moving average at 80.940.