September 29, 2011 / 12:05 AM / 6 years ago

Euro holds modest gains, China PMI eyed

SYDNEY (Reuters) - The euro clung to modest gains in Asia on Friday, following a brief boost after Germany approved an expansion of the euro zone bailout fund, but investors remain worried due to the many hurdles ahead of a workable resolution to the European crisis.

<p>A Euro sign is seen in the window of a discount store on Moore Street in Dublin July 6, 2011. REUTERS/Cathal McNaughton</p>

The euro was last at $1.3585, having climbed as far as $1.

Local attention now turns to the final HSBC PMI for China at 0230 GMT (10:30 p.m. EDT) after last week’s flash number was a touch softer than expected. The official PMI will be released on Saturday with bears wagering on a weak outcome.

However, if the data proves strong, investors fears about China’s hard landing could be calmed to some extent. A recent sell-off in Asian currencies has suggested some investors were bailing out of the “strong China” play.

Better-than-expected U.S. data showing initial jobless benefits at a five-month low and the economy slightly stronger in the second quarter, helped lift risk sentiment.

Yet, the euro failed to sustain the rally, as investors realized the European debt crisis is not going away. In fact a big hurdle will likely come when the EU tries to expand the size of the rescue fund to 2 trillion euros to ring-fence a potentially “managed” Greek default.

“There is still a lot of uncertainty... Economic growth in Europe and the U.S. is not that good and that will put pressure on the euro and give a bid to the dollar,” said Joseph Capurso, strategist at Commonwealth Bank of Australia.

He expected the single currency to fall close to $1.3400 in the next couple of days.

The euro is on track to post its worst month in nearly a year and its worst quarter since mid-2010 against the dollar, despite paring some losses this week. Only talk that euro zone authorities were finally acting to prevent the debt crisis from spreading lifted the euro off an eight-month trough of $1.3360 on Monday.

The common currency was steady against the yen at 104.38, having bounced from a decade low at 101.90 yen earlier in the week. Still, the euro shows a 5.0 percent loss so far this month.

Resistance for the euro is found at $1.3715, the 61.8 percent retracement of its decline to $1.3360 from $1.3937 in the second half of September. Talk of Asian sovereign supply in the $1.3700 area could cap any significant gains.

The dollar index edged down 0.2 percent to 77.920, well-off an eight-month peak of 78.863 struck on Monday.

The dollar was steady against the yen at 76.80, having peaked to a two-week high of 77.030 yen.

The New Zealand dollar fell more than 1 percent against the U.S. dollar offshore after ratings agency Fitch cut New Zealand’s credit rating by one notch to AA.

Fitch said it is unlikely the country will be able to sustainably reduce its current account deficit in the next few years.

Editing by Wayne Cole

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