March 27, 2013 / 1:05 AM / in 5 years

FOREX-Euro near 4-month low, yen dips on BOJ expectations

* Euro still smarts from “Cyprus model” suspicions

* Little sign of contagion to Italy, Spain

* Yen under pressure ahead of April 3-4 BOJ meeting

* Commodity currencies shine on rising risk appetite after Wall St gains

By Hideyuki Sano

TOKYO, March 27 (Reuters) - The euro hovered near a four-month low against the dollar on Wednesday after a rescue deal for Cyprus raised fears about financial stability in the currency bloc, while the yen dipped on hopes of more bond buying by the Bank of Japan.

Commodity currencies held firm after upbeat data on U.S. home prices helped to lift U.S. shares, with the Dow Jones Industrial Average hitting a new record and the S&P 500 coming within striking distance of its all-time closing high.

The euro traded flat at $1.2855 in early Asian trade, not far from four-month low of $1.2828 hit on Tuesday. Against a resurgent Australian dollar, it traded near the four-month low of A$1.2225 hit on Tuesday, fetching A$1.2274.

The common currency is still suffering from suspicions that bank depositors and bond holders may be forced to foot the bill in future rescue deals in the currency bloc following the Cyprus bailout.

Jeroen Dijsselbloem, head of the Eurogroup of finance ministers, raised the idea on Monday, saying that the rescue plan for Cyprus will serve as a model for resolving future euro -zone banking crises, but later appeared to backtrack saying Cyprus was a unique case, but the damage was already done.

“The euro still has downside risks. You never know what’s coming up next,” said a trader at a European bank.

“But some hedge funds are now covering short positions in the euro and I think the currency may stabilise for now,” he also said.

The euro could stabilise for the Easter holidays. Some analysts also noted there is little sign of dreaded contagion to the euro zone’s larger economies, such as Spain and Italy.

Their debt yields were well within recent ranges, thanks in part to the European Central Bank’s bond buying scheme.

The euro also gained about 0.2 percent against the yen to 121.68 yen, as the Japanese currency fell on fresh expectations for major Bank of Japan’s stimulus.

Japanese business daily Nikkei reported on Wednesday that the Bank of Japan will decide to expand its bond buying on April 3-4, the first policy review meeting under new Governor Haruhiko Kuroda.

The dollar also rose 0.2 percent to 94.53 yen, extending its rebound from one-week low of 93.53 yen.

Commodity currencies also held firm, helped by positive risk sentiment.

U.S. home prices posted their biggest year-on-year gain in six and a half years in January, in a sign the wounds inflicted by the 2008 financial crisis are healing, helping to boost Wall Street shares.

The Aussie traded at $1.0482, flat from late U.S. levels but near two-month high of $1.0497 hit on Tuesday.

The Canadian dollar was firm after gaining 0.5 percent on Tuesday to trade at C$1.0164 per U.S. unit, near one-month high of C$1.0160 hit on Tuesday.

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