* Euro rises after peripheral nations' debt sales
* Dollar slips on caution that FOMC may hint at more QE
* U.S. housing starts rise more than expected in August (Adds comments, details. Updates prices)
By Vivianne Rodrigues
NEW YORK, Sept 21 (Reuters) - The euro rose against the dollar on Tuesday, helped by solid demand at sales of euro zone debt, while expectations that the U.S. Federal Reserve may consider additional monetary easing weighed on the greenback.
Irish, Greek and Spanish government debt auctions attracted decent demand, easing concerns about whether the euro zone's highly indebted countries can obtain the funding they need. For details, see [ID:nLDE68C0H1] [ID:nATH005693] [ID:nLDE68J1NH]
Spreads between yields on those countries' debt and German bonds narrowed, while European equities rose <.FTEU3>.
Few expect the Fed, which is holding a regular policy meeting on Tuesday, to apply another dose of quantitative easing when it announces its decision at 2:15 p.m. EDT (1815 GMT). The accompanying statement, however, is expected to be dovish due to recent evidence of a weakening economy. [ID:nSGE68J04M]
"Well-received debt auctions from the peripheral euro area countries of Ireland, Greece and Spain spurred bullish momentum in the euro, driving it almost 90 pips higher," said Dan Cook, a senior market analyst at IG Markets in Chicago.
"(But) so much of the remainder of today's action hinges on the FOMC," he added. "While no additional quantitative easing measures are expected, the language in the statement alone could cause large swings in the currency market."
In late morning trading in New York, the euro was up 0.5
percent at $1.3129
As long as the euro holds above the $1.3030 area, some technical analysts see its Aug. 6 high of $1.3334 as an upside target. But it has to first breach technical resistance at its 200-day moving average, which comes in at about $1.3220.
Long-term moving averages are stronger resistance levels in this instance. Once breached, that level would become long-term support for the currency.
The dollar index was down 0.4 percent at 81.005 <.DXY>.
In the United States, the dollar briefly pared losses against the yen after a report showed housing starts increased more than expected in August. [ID:nN20141294]
Despite the improvement in the data, analysts said it is still too early to declare it a meaningful improvement in the housing sector.
"Housing starts are at very low levels but we're clearly seeing a solid bottom in the housing market," said Matthew Strauss, a senior currency strategist at RBC Capital, in Toronto. "It's too early though to call it a housing market recovery."
INTERVENTION FEARS
Fear of more intervention by Japanese authorities to curb
yen gains limited the greenback's losses. The dollar was last
0.4 percent lower at 85.35 yen
The dollar has failed to climb above its post-intervention high of 85.94 yen set last Friday on the EBS trading platform, capped by Japanese exporters selling ahead of their half-year book-closing on Sept. 30.
Its 55-day moving average, now at 85.87 yen, has become a resistance level since Japan intervened last Wednesday, and further resistance lies at 86.26, the bottom of its daily Ichimoku cloud trend indicator.
Some analysts do not rule out another push by Japanese authorities to push the greenback above 86 yen. Many doubt they would let the dollar fall below 85.00.
Still, downside risks for dollar/yen remained, should the Fed lay the ground for further quantitative easing.
"It will be a close call, since some of the recent data show the U.S. economy is stabilizing," said Lee Hardman, currency economist at BTM-UFJ. "But if the Fed signals more QE, U.S. yields could fall and take the dollar lower against the yen."
The dollar/yen pair has a very strong correlation to the spread between U.S. and Japanese government bond yields.
In other trading, the Australian dollar rose above 95 U.S.
cents for the first time since July 30, 2008 after the
country's central bank chief suggested Australian interest
rates would rise further. It was last little changed at 0.9477
after peaking at 0.9501