September 26, 2011 / 3:35 AM / 9 years ago

Euro relieved by EU hopes, yen on intervention watch

SYDNEY (Reuters) - The euro held gains in early Asia on Tuesday, following a sudden turnaround in investor mood from extreme skepticism to tentative optimism that Europe was really putting a plan together to deal with its debt and banking crisis.

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

The euro was last at $1.3516, having rallied from an eight-month low of $1.3360 on Monday. It was steady against the yen at 103.17, having bounced from a fresh decade low at 101.90 yen.

A steady drip feed of reports about how euro zone authorities were considering bolder steps to tackle their problems lifted the mood, though many hurdles lie ahead.

CNBC said one plan involves setting up a special purpose vehicle to buy distressed debt from banks and issuing them with new paper that could be exchanged with the European Central Bank (ECB).

“Markets are getting more confident around some action plan in Europe, which is positive, but on the other side, markets are also looking for more policy easing from the ECB, which is negative,” said Greg Gibbs, currency strategist at RBS in Sydney.

“The combination of both will leave the euro caught in the middle somewhere.”

For now support is found at $1.3470, ahead of a more solid floor at $1.3430-40, while resistance is seen at $1.3585, then $1.3630.

The euro zone is still facing plenty of hurdles, including votes this week in Finland and Germany on the earlier EFSF structure. The Greek government votes Tuesday on new austerity measures needed to secure aid.

However, talk of the new action plan seemed enough to ease the ultra-bearishness of investors and trigger a rebound in riskier assets such as commodities and stocks.

Copper had an amazing day, ending up 2 percent higher after crashing more than 6 percent at one stage.

Risk currencies also had a wild ride with the Aussie bouncing back to $0.9838, from a 10-month trough of $0.9622.

The dollar index edged down 0.35 percent to 78.088, after hitting an eight-month peak of 78.863.

The dollar remained stuck against the yen at 76.36, though traders reported growing talk Japan could intervene this week ahead of the end of their financial half-year. The yen has gained nearly 6 percent so far this year.

Early Tuesday, Japan’s government said it wants to bring forward steps to ease the pain some companies feel from a stronger yen and enact the measures before it completes an extra budget to fund reconstruction spending.

Editing by Wayne Cole

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