* Euro gains on short-covering, stop-loss buying
* Spain formally asks for European funds to recapitalize
* Merkel does not rule out Greek debt haircut
* Euro vulnerable to flare-up in "fiscal cliff" worries
By Julie Haviv
NEW YORK, Dec 3 The euro leaped to its highest
level against the U.S. dollar in six weeks on Monday as concerns
abated about debt-burdened Greece and Spain while Chinese data
allayed worries about global economic growth.
The single currency shared by 17 countries, which was
already gaining on signs Germany may be open to a Greek debt
write-down, hit new highs after Spain formally asked for
European funds to recapitalize its banking sector.
Demand for euros was also buoyed by economic data out of the
German Chancellor Angela Merkel said on Sunday Greece's
creditors may look at writing down more of its debt, a move that
would make the country's debt burden more easily sustainable.
Greece said it would spend 10 billion euros ($13 billion) to
buy back bonds at a price range that topped market expectations,
boosting hopes it can cut its ballooning debt and unlock
A successful buyback is central to the efforts of Greece's
foreign lenders to put the near-bankrupt country's debt back on
a sustainable footing and would clear the way for the funding
Athens needs to avoid running out of cash.
"The successful completion of the repurchase will unlock
bailout cash from the IMF and help secure the flow of rescue
funds from the so-called "troika" in 2013," said Ilya Spivak,
currency strategist at DailyFX in New York.
Greece's "troika" of lenders includes the International
Monetary Fund, European Union and the European Central Bank.
"Confidence may be threatened as the closely-watched U.S.
ISM print comes across the wires," Spivak said.
The euro climbed to $1.3073, its highest since Oct.
23, before paring gains to last trade up 0.4 percent on the day
Traders said stop-loss orders were triggered on the break of
$1.3030, and market players who had previously bet against the
euro were squaring their short positions as it moved higher.
There was talk of an options barrier at $1.3050 with some
traders expecting sellers around that level.
"Merkel is sounding a bit more flexible and we are getting
positioning moves and a bit of flow moves," said Daragh Maher,
FX strategist at HSBC.
"But I still think we are in a market where the reflex is to
not really like the euro. A number of people have been trying to
sell this rally and perhaps getting caught the wrong way, and
that's why we are able to push higher."
The euro was helped by Spanish and Italian bond yields
falling as investors became more confident about buying euro
zone debt, and Greek bonds rallied after the announcement of
details of a debt buy-back.
A slightly better-than-expected Spanish manufacturing PMI
survey -- on top of signs of quicker Chinese growth -- also
strengthened investor appetite to take on risk.
FISCAL CLIFF RISKS
Despite the euro recovering from falls after ratings agency
Moody's downgraded the euro zone rescue funds late on Friday
, the single currency looked vulnerable to
continuing concerns about how the euro zone will deal with its
debt crisis and worries about the U.S. "fiscal cliff".
If Congress and Washington cannot reach a deficit reduction
deal by the end of the year, massive U.S. government spending
cuts and tax rises will be unleashed in early 2013. Many
economists believe this "fiscal cliff" has the potential to tip
the U.S. economy back into a recession.
Signs policymakers are struggling to reach an agreement to
avert that scenario could boost demand for the highly liquid
dollar, which is considered a safe haven currency.
"Resolution of the U.S. fiscal cliff still seems some way
off, and it is increasingly likely that a comprehensive
agreement will be delayed into the new year, meaning the economy
may go over the cliff in January only to be hauled back up again
soon after," said Simon Hayes, analyst at Barclays Capital.
The dollar last traded flat against the yen at
82.34, retreating from last month's peak of 82.82 yen.
The yen has been under pressure on expectations that a
likely change in Japan's government later this month would lead
to aggressive monetary easing.