FOREX-Euro bounces off lows, eyes on Bernanke

(Updates prices)

By Ian Chua

LONDON, Jan 17 (Reuters) - The euro rebounded from two-week lows against the dollar on Thursday after comments from ECB Governing Council member Yves Mersch suggested the central bank was not looking to lower interest rates yet.

Mersch reiterated that the European Central Bank discussed two options, not three, at last Thursday's policy meeting. A day earlier he said he did not rule out a downward revision of euro zone growth forecasts for 2008, comments that sent the euro reeling.

"He is saying that the discussion in January was still should they raise rates or keep them same... It's a slight change from yesterday when he was discussing the (possibility) of downward revisions to growth this year," said Tom Vosa, head of market economics at nabCapital.

"It's obvious that he wants to remind the market that the ECB is still very much looking at tightening policy should they see second round effects feed through to wage pressure. So it puts us back to where were on Tuesday."

The euro bounced to a high of $1.4686 EUR=, well off an intra-day two-week low of $1.4589, before steadying at around $1.4640, little changed on the day. It slid more than 1 percent on Wednesday.

Against the Swiss franc, the dollar hit a one-week high of 1.1087 CHF=, bouncing up from Wednesday's record low of 1.0836, but it gave up early gains versus the Japanese currency, slipping 0.3 percent to 107.15 yen JPY=.

BERNANKE, TRICHET

The market was also waiting for Federal Reserve Chairman Ben Bernanke's testimony before the House Budget Committee due at 1500 GMT to validate the risk of chunky U.S. rate cuts already factored in.

"With the market fully pricing in a 50 basis point cut and given the reasonable possibility that it could be 75 ... it would take something pretty dramatic to suggest even more aggressive cuts," Simon Derrick, head of currency research, at Bank of New York Mellon.

As well as Bernanke and U.S. data, a speech by ECB President Jean-Claude Trichet and any developments in Washington over a possible stimulus package for the struggling economy that President George W. Bush has said he is considering, will also be closely watched.

The White house said Bush will hold a conference call with congressional leaders on Thursday to discuss the economy.

Analysts said that discussion of the stimulus package may also feature during Bernanke's speech as it is a testimony before the House Budget Committee.