* Slovakia seen eventually approving EFSF expansion
* Yuan firm after U.S. Senate passes China trade bill
* Dollar hits highest vs yen since early September
By Wanfeng Zhou
NEW YORK, Oct 12 The euro rallied on Wednesday
to a near one-month high against the dollar on hopes Slovakia
would eventually approve an expansion of the euro zone rescue
fund critical to containing the region's debt crisis.
Slovakian lawmakers struck a deal to ratify a plan to
bolster the European Financial Stability Facility (EFSF) by
Friday, a day after a junior party blocked its passage.
Investors also took comfort from German Chancellor Angela
Merkel's comment that she was certain of full ratification of
the bailout fund's expansion by the Oct. 23 European Union
Reduced worries about Europe's debt crisis prompted
investors to exit bets against the euro. Gains in the single
currency accelerated after it broke option barriers at $1.37
and resistance in the $1.3815-$1.3820 region, traders said.
"Investors are willing to put risk back on the table for
now. As a result, we are seeing an acceleration in net buying
of the euro," said Samarjit Shankar, managing director of
global FX strategy at BNY Mellon in Boston.
The euro last rose 1.1 percent to $1.3808, after
touching a high of $1.38340 on the EBS trading platform, its
strongest since Sept 16.
The euro rallied 1.9 percent to 106.57 yen ,
after peaking at 107.035 yen, the highest since Sept. 9.
Traders said the euro's rise could be limited by lingering
concerns about political hurdles to containing the euro zone
crisis and a deteriorating growth outlook in the region.
"This is a short-term technical squeeze without much
fundamental support," said Paresh Upadhyaya, head of Americas
G10 FX strategy at Bank of America Merrill Lynch in New York.
The dollar rose 0.8 percent to 77.27 yen, having hit a
one-month high of 77.489 on EBS. Against a basket of
currencies, the dollar index fell to a three-week low of
76.796 and was last down 0.9 percent.
The currency market showed little reaction to minutes from
the Federal Reserve's last policy meeting.
China's yuan was firm against the dollar after the U.S.
Senate passed a trade bill aimed at pressing Beijing to lift
the value of its currency, raising tension between the world's
two biggest economies.
Republican House Speaker John Boehner said he opposes the
Senate-passed bill, while China urged the Obama administration
to block the proposal. Analysts said it was unlikely the bill
would become law.
Karl Schamotta, senior market strategist at Western Union
Business Solutions in Calgary, said punishing China for its
undervalued exchange rate will do little to address underlying
imbalances because China would retain a "significant cost
advantage" even if the yuan was trading at a market level.
"I'd expect to see conciliatory gestures on both sides in
the weeks ahead - possibly including a limited rise in the
exchange rate peg itself," he said. "The lessons of the dirty
thirties have been heeded in many circles - many policymakers
understand that beggar-thy-neighbour simply lowers home values
across the entire neighborhood."