FOREX-Euro falls as risk rally fades, Spain in focus

* Spanish protester clash with police
* Spain, Greece worries weigh on euro
* Euro blocked by tough resistance at $1.2970

By Gertrude Chavez-Dreyfuss
NEW YORK, Sept 25 (Reuters) - The euro slid against the
dollar late in the New York session on Tuesday, pressured by a
late fall in stocks and commodities as investors grew cautious
about developments in debt-plagued Spain.
Spain, in no rush to seek a bailout, prepared for a new
round of austerity measures in the 2013 budget but was met
Tuesday by protesters who clashed with police in the country's
capital.
Spanish Prime Minister Mariano Rajoy has already passed
spending cuts and tax hikes worth slightly more than 60 billion
euros over the next two years, but half-year figures show the
2012 deficit target slipping from view as tax income forecasts
will not be hit due to economic contraction.
"The Spanish budget data was pretty appalling," said Tommy
Molloy, chief dealer at FX Solutions in Ridgewood, New Jersey.
"Tax receipts were lower while spending was higher, which
indicates that austerity is not something that's going to work
in Spain."
He added that it's really just a matter of time before the
Spanish government seeks a bailout even as the country's
Andalusia region is already considering seeking a 4.9
billion-euro emergency credit line.
Equities and commodities as a result lost momentum, while
the euro and commodity-linked currencies such as the Australian
and Canadian dollars fell after trading higher for most of the
New York session.
European Central Bank President Mario Draghi's vigorous
defense of the bank's bond-buying plan to a skeptical German
audience on Tuesday had earlier underpinned the euro.

But even then, most analysts were convinced that the euro's
rally wouldn't last long.
The euro last traded down 0.2 percent at $1.2906
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.
The euro hit a high of $1.2970, a key trendline resistance
over the last two weeks. Molloy and TD Securities Greg Moore
were both convinced that the euro zone common currency's recent
rally is finished.
Some market participants have already taken to the sidelines
ahead of the Jewish Yom Kippur holiday and most expect trading
activity to be subdued on Wednesday.
The euro, however, will be put to the test next week amid a
slew of significant events.
The ECB will hold its next policy meeting on Oct. 4 and U.S.
non-farm payrolls data, a key monthly market driver, is due on
Oct. 5.
This month the 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 labor improvement.
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.
Spain, meanwhile, 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.
In the United States, economic data had initially 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' mood improved this month, with
confidence jumping to the highest in seven months as Americans
were more optimistic about the job market and income prospects.
The dollar hit a one-month high of 79.22 yen on Sept. 19
after the Bank of Japan announced further monetary easing. It
was last little changed at 77.80 yen.