January 30, 2012 / 3:31 AM / 6 years ago

Yen strength against USD in focus; euro pressured

SYDNEY (Reuters) - The dollar floundered around three-month lows versus the yen in Asia on Tuesday and was near enough to record depths to make markets wary of intervention, while the euro nursed losses as Greece's debt swap deal proved elusive.

The greenback stood at 76.35 yen, having fallen as low as 76.20 overnight, nearing an all-time low around 75.31 plumbed on October 31 when Japanese authorities intervened to quell the yen's strength.

Since hitting a high of 78.28 last week, the dollar has fallen about 2.5 percent confounding some market players who had wagered heavily on the greenback rising further.

"The risk of 'Yentervention' is especially high as the Japanese currency nears record strength against both the US dollar and euro," said David Rodriguez, strategist at DailyFX.

"Retail traders clearly stand to benefit if Japanese authorities send the USDJPY sharply higher as they did in their October, 2011 intervention."

The euro fell to 100.31 yen, from highs above 102 set last week. It has retraced about 40 percent of the Jan 16-26 rally which took it from an 11-year low of 97.00 to a peak of 102.21.

Against the dollar, the euro stood at $1.3139, having been knocked off a 6- week high of $1.3230. Traders warned the turn lower suggested the recovery from a 17-month trough of $1.2620 in mid-January was losing steam.

Societe Generale strategists expect the euro to break below the $1.3075 pullback level and return to the $1.2590/1.2600 support area.

Renewed pressure on the euro saw the dollar index .DXY pull up from a six-week trough of 78.772 to 79.101.

The outcome of Monday's euro zone summit left markets with little to cheer about. While European leaders agreed on a permanent rescue fund for the euro zone, they struggled to reconcile fiscal austerity with economic growth.

"With the EU Summit out of the way, the Greek PSI will remain the focal point for the market. The longer this drags out, the more likely euro could suffer," BNP Paribas strategists said, referring to the Greek debt swap talk.

Until there is a deal, EU leaders cannot move forward with a second, 130-billion-euro rescue program for Greece, which they originally pledged at a summit last October.

The drawn-out debt talks have also clouded Greece's largest bank merger in decades. The merger between Alpha Bank (ACBr.AT) and EFG Eurobank EFGr.AT would create Greece's biggest bank that would be better equipped to cope with the debt crisis.

But Alpha Bank said it needs to assess the impact of the country's revised sovereign debt swap before it can combine with EFG Eurobank.

The gloom surrounding Athens spread to Portugal on Monday, driving up the cost of insuring Portuguese government bonds to a new high and causing the 10-year yield to soar 171 basis points to 17.353 percent.

The only set of positive news from the euro zone came from Italy, which raised 7.5 billion euros in a bond sale at a lower cost.

On the data front, Japanese manufacturing PMI picked up to 50.7 in January, from 50.2 in December, the fastest pace of expansion in five months. The Chinese and European PMI's and the US ISM are due on Wednesday.

Editing by Wayne Cole

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