* Euro rises on view Irish debt crisis may be easing
* Spain bond auction goes smoothly but yields higher
* Stocks, higher-yielding currencies gain
(Adds quote, updates prices, changes byline, changes dateline, previous LONDON)
By Wanfeng Zhou
NEW YORK, Nov 18 (Reuters) - The euro jumped on Thursday on optimism Ireland will get loans to ease its banking and debt crisis, but the gains may prove short-lived as investors remained concerned about the risk of contagion to the rest of Europe.
The euro rose nearly 1.0 percent versus the dollar and yen as the cost of insuring Irish debt against default fell after Ireland's central bank chief said he expected Dublin to receive tens of billions of euros in loans from European partners and the IMF. See [ID:nLDE6AH0HV]
Analysts cautioned, however, that lingering worries about other debt-stricken European economies including Portugal and Spain will likely continue to weigh on the euro. Year-end flows as investors book profits on their short dollar positions could further support the greenback.
"The markets are not wholly convinced that contagion issues will be contained. That's why we're not seeing a really aggressive rally in the euro. Otherwise, the euro would be up at around $1.38 or $1.39," said Dean Popplewell, chief strategist of FX brokerage OANDA in Toronto. "We are certainly seeing interest to actually sell euros on rallies."
The euro
Traders said stop-losses were triggered $1.3630. Resistance levels are $$1.3750 and $1.3765, the 38.2 percent retracement of this month's fall.
"IMF involvement points powerfully towards funding support for Ireland, probably to ring-fence the banks, which reduces risks to some extent," said Ray Farris, currency strategist at Credit Suisse.
"But this is not a silver bullet for Ireland. The Irish budget and election are its next event risks," he said.
The euro is still down nearly 5 percent from a 10-month high above $1.4280 set on Nov. 4.
Some analysts saying that even if there a quick resolution is reached over Ireland, players would fret about other peripheral euro zone economies and their debt levels, with Portugal thought to be in the market's sights.
A Spanish bond auction passed relatively smoothly, as it
sold 3.7 billion euros worth of 10 and 30-year bonds, albeit at
higher yields. [ID:nMDT009508]
Description of EU safety net: [ID:nLDE65718H]
How Ireland might tap funds: [ID:nLDE6AE1S3]
Euro zone debt struggles: http://r.reuters.com/hyb65p
Multimedia coverage: http://r.reuters.com/hus75h
RISK ON
Investors' risk appetite boosted sentiment toward equities
and commodities and drove higher-yielding currencies up. The
Australian dollar rose 0.9 percent to $0.9874
"It is a risk-on environment today, and we are seeing an outperformance of riskier assets," said Christian Lawrence, currency strategist at RBC Capital Markets.
The dollar index <.DXY>, which tracks the greenback's performance against a basket of major currencies, dropped 0.7 percent to 78.560, off Tuesday's seven-week high of 79.461.
The dollar came under pressure after data on Wednesday showed U.S. core consumer inflation rose 0.6 percent from a year ago, the smallest increase since records started in 1957, which bolstered the case for the Fed to deliver all of its $600 billion of quantitative easing.
Traders said hedge funds are likely to close dollar short positions ahead of their book-closing later in the year, which could lift the greenback.
Against the yen