Euro steady as Greece optimism offsets France downgrade

A structure of the Euro currency sign is seen through the window on a rainy evening in Frankfurt July 13, 2012.

LONDON (Reuters) - The euro held steady against the dollar on Tuesday as cautious optimism that euro zone ministers would release funds to debt-ridden Greece offset a cut in France's credit rating.

Finance ministers meet later in the day to discuss unlocking delayed aid payments to Greece, a day after Athens passed laws to enforce budget targets and appease foreign lenders. <Id:nL5E8MJ7QP>

Signs that Greece seemed to be on track to receive the funding supported demand for the euro, which pared earlier losses after ratings firm Moody's stripped France of its triple-A status late on Monday.

Analysts said the cut did not come as a surprise after Standard & Poor's downgraded France in January, and the finance ministers meeting could have a bigger impact on the euro if policymakers fail to meet market expectations.

"Although we know Greece's problems will not be resolved today many people would like to put this particular part of the issue to bed, and there's no guarantee of that," said Jane Foley, senior currency strategist at Rabobank.

"If this does drag on beyond today there's scope for it to cause some disappointment for the euro."

The single currency was close to flat on the day at $1.2802.

Strategists said failure to reach an agreement could see the euro give up its gains of recent days and fall back below $1.28, targeting the November 13 low of $1.2661.

Some investors were wary after Finland's finance minister said she was unsure Greece's next loan trance would be approved at the meeting.

YEN WEAKNESS PERSISTS

The dollar dipped 0.2 percent to 81.21 yen but held close to a seven-month high of 81.59 yen hit on Monday amid mounting political calls for more aggressive monetary expansion.

The yen showed limited reaction after the Bank of Japan held off from additional monetary stimulus, as expected, after having eased policy in September and October.

The yen has slid over the past week on market expectations that a likely new Japanese government after a December 16 election would push the BOJ toward more forceful monetary stimulus.

Analysts said the dollar may have more room to rise against the Japanese currency in the near term.

"I think we are going to see new highs," said Todd Elmer, currency strategist at Citi in Singapore, referring to the dollar's outlook versus the yen. "We are going to break out of the topside of the range around 82. The risk is that we could extend a little beyond that point."

Shinzo Abe, the leader Japan's opposition Liberal Democratic Party (LDP), has called on the BOJ for bolder policy action, including "unlimited easing", pushing interest rates to zero or below and directly underwriting bonds issued to fund public works spending.

The Nikkei newspaper reported that the LDP was likely to include in its campaign platform a pledge to consider revising a law guaranteeing central bank independence.

The euro also pulled back after hitting four-week high of 104.29 yen on Monday, and was last down 0.4 percent at 103.87 yen.

(Additional reporting by Masayuki Kitano, editing by Nigel Stephenson)