* Most U.S. data positive, but risk appetite wanes * "Fiscal cliff" fears dominate * BoJ boosts asset buying by 10 trillion yen By Gertrude Chavez-Dreyfuss NEW YORK, Dec 20 The euro edged lower against the dollar on Thursday in volatile trading as worries over U.S. budget negotiations outweighed generally positive U.S. economic data that had earlier boosted the market's appetite for risk-taking. Concerns about U.S. policymakers not being able to reach a resolution on the "fiscal cliff" dogged the currency market. A combination of tax hikes and spending cuts could kick in early next year if U.S. legislators fail to reach a fiscal deal, a scenario that could push the world's largest economy into recession. A U.S. budget agreement is deemed positive for growth-linked currencies such as the euro and Australian dollar, but viewed as negative for the safe-haven dollar. The Republicans announced plans to put an alternative tax plan to a vote in the House of Representatives this week, prompting President Barack Obama to threaten to veto it, thereby unraveling the progress made over the last week. . "There's obviously the backdrop of U.S. fiscal cliff fears. (U.S. House of Representatives Speaker John Boehner) has rattled a lot of people," said Richard Franulovich, senior currency strategist at Westpac Securities in New York. He added that there were also technical considerations at play in the euro/dollar pair. "The euro has been trying to break above $1.33 two days in a row. So obviously it's being stymied. There are also sellers at that $1.33 level and that's repelling euro," Franulovich said. By midday, the euro was down slightly at $1.3224 after trading higher for most of the session. On Wednesday, the euro hit an 8-1/2 month high. Still, market players were mostly positioned for a U.S. deal to be reached on time, with some expecting the euro to go as high as $1.3500 by early January. In recent sessions, signs of progress between Democratic and Republican lawmakers pushed global stocks to a three-month peak and saw riskier currencies all post solid gains against the U.S. dollar. The euro earlier rose as high as $1.3295 after better-than-expected U.S. third-quarter GDP data on Thursday and it held gains after the release of more robust economic numbers. Investors had bought more euros - a currency that tends to benefit in times of increased risk appetite - as recovery in the world's largest economy seemed to be on track. The final estimate for U.S. gross domestic growth in the third quarter was 3.1 percent, up from the 2.7 percent annual rate reported last month, while U.S. existing home sales rose unexpectedly at their fastest pace in three years. In addition, factory activity in the U.S. mid-Atlantic region accelerated in December, bouncing back from the previous month's storm-related slump as new orders picked up. Against the yen, the euro drifted lower to 111.61. The Japanese currency had earlier slipped against the dollar after the scale of asset purchases set by the Bank of Japan disappointed some investors who had positioned for more aggressive easing. The dollar by midday was flat at 84.36 yen. Any gain in the yen is expected to be capped by the prospect of further easing by the BoJ next year. The Japanese central bank increased its asset buying by 10 trillion yen and said it would debate next month whether there is room to raise its inflation target, a move that could weaken the currency.
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