FOREX-Euro gains as ECB's Draghi defends bond-buying plan

* ECB's Draghi defends bond-buying plan
* Bundesbank checking legality of ECB bond-buying - report
* Euro rebounds from one-week low
* Spain, Greece worries weigh on euro

By Julie Haviv
NEW YORK, Sept 25 (Reuters) - The euro rose against the
dollar on Tuesday, rebounding from a more than one-week low as
European Central Bank President Mario Draghi defended the
central bank's bond-buying plan not long after a media report
said German lawyers were checking its legality.
Draghi offered a vigorous defense of the bank's plans to a
skeptical German audience and said it was now up to governments
to follow up with decisive policy steps of their own.

An ally of Germany's powerful Bundesbank at the ECB also
defended the new bond-buying program. Ewald Nowotny, an ECB
governing council member and Austria's central bank governor,
said the ECB was on a firm footing with its plan to stem the
euro zone crisis.
The euro was earlier weighed down by a media report that
said Bundesbank lawyers were checking the legality of the ECB's
plan. ID:nL5E8KP001]
"The euro weakened during the European session on rumors
that the ECB's program was being questioned on the legal front
and on uncertainty about what Draghi might say," said Camilla
Sutton, chief currency strategist at Scotiabank in Toronto.
"As Draghi spoke he removed a lot of uncertainty and that
helped support the euro."
Senior ECB sources, meanwhile, have said the bank's legal
department studied the legality of bond-buying carefully before
the Sept. 6 decision to launch the program.
The euro last traded at $1.2948, up 0.1 percent,
after dropping to $1.2885, its lowest since Sept. 13. If the
euro turns lower again it could target the 200-day moving
average at $1.2827.
"So far this week we have had a lot of headline noise,"
Sutton said. "But next week will bring major events that could
make a significant impact on the euro."
The ECB will holds its next policy meeting on Oct. 4 and
U.S. nonfarm payrolls data, a key monthly market driver, is due
on Oct. 5. This month the U.S. Federal Reserve announced a third
round of bond buying, so-called quantitative easing.
The Fed said it will continue buying bonds until it sees a
marked improvement in the labor market.
The euro should remain under pressure if Spain drags its
feet over requesting an international bailout. This must happen
in order for the ECB to begin buying its bonds and, until it
does, analysts say the euro is likely to weaken.
Last week, the euro hit a 4-1/2-month peak of $1.3169 on
optimism as a result of the ECB plan and after the Federal
Reserve announced aggressive quantitative easing earlier this
month to boost a sluggish U.S. economy.

GREECE STILL A CONCERN
Worries about the size of Greece's deficit also weighed on
the euro, with German's Der Spiegel magazine reporting it could
be 20 billion euros, nearly double previous estimates.
"Fears about Europe's situation remain among investors, with
the focus mostly on Spain, but Greece is also still a concern,"
said Kimihiko Tomita, head of foreign exchange for State Street
Global Markets in Tokyo.
Spain is expected to unveil new structural reforms and its
draft budget plan for 2013 this week, with investors also
awaiting results of stress tests on its banking sector. A
Moody's credit rating review of Spain is also expected, and it
could downgrade Spanish debt to junk status.
Economic data buoyed the dollar against the yen. U.S. home
prices continued to rise in July, the latest evidence that the
recovery in the housing market is on track.
Moreover, U.S. consumers' moods improved in September, with
confidence jumping to the highest level in seven months as
Americans were more optimistic about the job market and income
prospects.
Japanese Finance Minister Jun Azumi told reporters he was
ready to take firm measures on currencies as long as he was
finance minister. He said there would be no vacuum in currency
policy due to his pending departure to take a new position in
the ruling Democratic Party.
The dollar hit a one-month high of 79.22 yen on Sept. 19
after the Bank of Japan announced further monetary easing.
The dollar was last up 0.1 percent at 77.92 yen,
according to Reuters data.