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FOREX-Euro hits 15-mo high vs dollar; yen, Swiss franc up

Published 04/12/2011, 09:51 AM
Updated 04/12/2011, 10:00 AM
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* China committed to buying Spanish debt, boosts euro

* Yen, Swiss franc big gainers as well in risk-off market

* Japan nuclear situation deteriorates (Recasts, adds quote, updates prices, changes dateline; previous LONDON and byline)

By Gertrude Chavez-Dreyfuss

NEW YORK, April 12 (Reuters) - The euro rose to a fresh 15-month high against the dollar above $1.45 on Tuesday, boosted by reported buying from China and news the world's second largest economy was willing to purchase more Spanish debt.

The euro's break above $1.45 was a bullish signal, which could open a test of $1.4550 and $1.4580. Both levels are said to be lined with option barriers.

"The euro is being supported by expectations of higher interest rates and news that China has reiterated its commitment to buy European debt," said Camilla Sutton, chief currency strategist, at Scotia Capital Markets in Toronto.

"That China news helped drive Spanish yields lower and was positive for the euro."

Spanish 10-year yields have fallen to 5.18 percent on Tuesday from a recent high of 5.55 percent on March 10.

The yen and Swiss franc were the two other big movers of the day, rising after Japan's nuclear situation worsened and Alcoa missed revenue estimates, prompting investors to sell risky assets funded by the two low-yielding currencies.

Gains in both the yen and Swiss franc, were likely to be short-lived as demand for so-called carry trades financed by those two units may pick up again should the situation in Japan improve.

The yen rose for a fourth straight session, partly retracing 10 consecutive days of losses versus the U.S. dollar. The Swiss franc also advanced for a fourth straight day.

The initial sell-off in risk was prompted by Japan's Nuclear Safety Agency raising the severity rating of the Fukushima accident to level 7 -- the highest classification and the same as the world's worst nuclear disaster at Chernobyl in 1986..

News that revenues from Alcoa Inc., the largest U.S. aluminum producer, missed Wall Street's target and leading to a steep drop in the company's share price, also dented risk sentiment.

Both the Japan and Alcoa news led some speculators to book profits on carry trades, where investments in riskier assets and higher-yielding currencies such as the Australian dollar are funded by going short on the low-yielding yen.

In early New York trading, the euro reversed losses to trade 0.5 percent higher on the day at $1.4510, after earlier hitting a fresh 15-month peak at $1.4518 on electronic trading platform EBS.

Investors took out option barriers at $1.4500 and stops at $1.4510-12.

Against the yen, the euro was down 0.1 percent at 122.02, recovering from a low of 120.16 yen hit earlier in the day. The Australian dollar also pared losses against the yen as did other growth-linked currencies as investors bought at lower levels.

Short yen positions and key technical indicators in the euro/yen and Aussie/yen pairs had been indicating the chances of a temporary pullback after their recent rally. With this correction, some analysts said, the trend for broad yen weakness was likely to be on more solid ground.

The U.S. dollar was down 0.7 percent at 84.01 yen paring earlier losses after running into technical support at its 200-day moving average just below 83.50. Japanese real-money accounts were dollar/yen buyers, while offers were reported at 84.50.

Short-term losses in the dollar versus the yen are still likely, with a close below 84.41-51 yen adding to the greenback's bearish bias.

The dollar fell 1.3 percent against the Swiss franc to 0.89490. It earlier dropped to 0.89446, its lowest in more than three weeks.

The ICE Futures' dollar index, which tracks the greenback against a basket of major currencies, was down 0.5 percent at 74.754, after hitting 74.704, its lowest since December 2009. (Editing by Theodore d'Afflisio)

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