FOREX-Euro lifts off 2-month low on Greek deal prospects

Tue Nov 13, 2012 6:36pm IST

* Germany wants to bundle Greek aid - newspaper

* Report lifts euro off 2-month low versus dollar

* Uncertainties remain, may limit gains

* Weak ZEW data highlights problems facing Germany

By Jessica Mortimer and Philip Baillie

LONDON, Nov 13 (Reuters) - The euro pulled away from a two-month low against the dollar on Tuesday after a German newspaper said Germany wants to bundle Greek aid into a single payment of more than 44 billion euros.

Traders interpreted the Bild report, which cited government sources, as a sign that the euro zone's paymaster was eager to see a deal done after euro zone ministers on Monday stopped short of releasing aid under Greece's bailout programme.

But the euro remained vulnerable to uncertainty over funding for the debt-stricken country. Asked about the report, a German finance ministry spokeswoman said no final decision had been made on Greek loans.

The euro was last flat at $1.2703, having earlier dropped around 0.3 percent to $1.26615, its lowest since Sept. 7, in reaction to the euro zone finance ministers' meeting and weak German data.

Traders said a reported options expiry at $1.27 later on Tuesday may influence trade and keep it close to that level.

"If there are signs that Greece could get a disbursement before they run dry of money that would give the euro a boost," said Dag Muller, technical analyst at SEB.

But he said the euro could stall ahead of chart resistance around $1.2850-$1.2900. SEB forecast the euro would rise to $1.32 by the end of the year, although Muller said this was conditional on Greece getting the funding it needs.

Bild said the payment would comprise the 31.3 billion euros dating from the second quarter that Greece hopes to receive soon to avert bankruptcy, with further tranches of 5 billion euros and 8.3 billion euros for the third and fourth quarters.

The lack of a fresh aid payment meant Greece had to roll over short-term borrowing.

It sold 4.062 billion euros of treasury bills on Tuesday. Although this was not be enough to finance a 5 billion issue maturing on Friday, it will be followed by the proceeds of non-competitive bids for the paper in coming days.

WORRIES REMAIN

The euro fell earlier as Greece's international lenders clashed over the time Athens needs to bring its debt down.

The finance ministers said it should be given until 2022 to lower its debt to GDP ratio to 120 percent but International Monetary Fund chief Christine Lagarde insisted the existing target of 2020 should remain.

A weak German ZEW sentiment survey, which showed a drop to -15.7 in November from -11.5 in October, also heightened concerns about the impact of the euro zone crisis on Europe's largest economy and knocked the euro.

It traded down 0.1 percent against the yen at 100.95 yen , above an earlier one-month low of 100.35 yen.

"The fact that spreads of Spain and Italy have not compressed more has brought this crisis back to the mindset of the market and that is reflected mainly in the ZEW survey," Ulrich Leuchtmann, Head of FX Research at Commerzbank in Frankfurt.

"Therefore it is a clear indication the crisis-over mood is beginning to be priced out," he said.

The euro has fallen steadily since hitting a peak of $1.3140 in mid-October as the euphoria over a European Central Bank bond-buying scheme faded.

Eurogroup Chairman Jean-Claude Juncker said on Monday the ministers would meet again on Nov. 20, though officials said more talks could be needed the following week to cement a deal.

The dollar index was steady at 81.075, having earlier hit a two-month high of 81.241.

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