September 21, 2012 / 1:50 PM / 5 years ago

CORRECTED-FOREX-Euro gains on speculation over Spain bailout

(Corrects to say "retirement age" in third paragraph)
    * Euro edges back toward 4-1/2-month high, upside limited
    * Sources say Spain making plans to meet aid conditions
    * Dollar slips vs basket of currencies

    By Wanfeng Zhou
    NEW YORK, Sept 21 (Reuters) - The euro rose against the
dollar in choppy trade on Friday, helped by speculation Spain
may soon request financial aid to help ease the country's debt
    Volume was thin ahead of the weekend and traders said the
euro may struggle to extend gains significantly as uncertainty
remained about the timing of a potential bailout.  
    Sources with knowledge of the matter told Reuters Spain is
considering freezing pensions and speeding up a rise in the
retirement age as it attempts to meet conditions of an
international aid package. 
    "Reports of a Spanish deal as soon as next week helped to
boost sentiment and the euro. The market remains prudently
bullish buying on dip," said Sebastien Galy, currency strategist
at Societe Generale in New York.
    The euro rose 0.4 percent to $1.3023, having hit a session
high of $1.3047 on Reuters data, not far from a
four-and-a-half-month peak of $1.3169 set on Monday.
    The dollar slipped 0.3 percent to 79.131 against a
basket of currencies, within sight of a six-and-a-half-month low
of 78.601 hit last week in the wake of aggressive monetary
easing by the Federal Reserve.
    "There is still prevailing dollar weakness from quantitative
easing in the U.S. and the euro has come out in a new range
which looks like it will be more stubborn," said Lee McDarby,
head of dealing for corporate and institutional treasury at
    Carl Hammer, chief currency strategist at SEB in Stockholm,
said the euro may rise to $1.31 or slightly higher over the
coming month but would peak at not more than $1.34-$1.35 because
Spain applying for funding would be "the last piece of
euro-positive news".
    Spain, the new epicenter of the euro zone debt crisis after
Greece, Ireland and Portugal, has been hesitating to apply for
external aid, creating uncertainty in the markets. Its borrowing
costs fell on Thursday at a debt auction but the relief may be
    "The risk is that if they don't (seek a bailout) investors
will panic out of their newly bought Spanish bonds," Societe
Generale's Galy said.
    There are also concerns surrounding Greece, with negotiators
still short of a deal that would unlock the next installment of
the country's 31.5-billion-euro bailout package. 
    The dollar was steady at 78.26 yen, well below a
one-month high of 79.21 hit on Wednesday after the Bank of Japan
boosted its asset-buying program to support the country's
economic recovery.
    Sterling rose to its highest in nearly 13 months
against the dollar at $1.6310, helped by UK public borrowing
data that was not as bad as expected. It was
last at $1.6280, up 0.4 percent.
    The high-yielding Australian dollar climbed 0.6
percent to $1.0499.

 (Additional reporting by Jessica Mortimer in London; Editing by
James Dalgleish)
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