* Euro gains on better European outlook
* Spain formally asks for European funds to recapitalize
* U.S. factory activity shows contraction
* Euro vulnerable to flare-up in "fiscal cliff" worries
NEW YORK, Dec 3 The euro climbed for the fourth
straight session against the dollar on Monday to touch a
six-week high as news from Spain and Greece allayed concerns
about those debt-burdened countries, while data from China eased
worries about global economic growth.
The currency shared by 17 euro zone nations gained against
the greenback on signs Germany may be open to a Greek debt
write-down. It hit a new high after Spain formally asked for
European funds to recapitalize its banking sector.
Demand for euros was also buoyed by rising risk appetite as
business surveys showed the euro zone's manufacturing sector
shrank a little less rapidly in November and data showed Chinese
manufacturing output grew last month for the first time in more
than a year.
The expansion in Chinese factory activity should provide a
boost for world growth, particularly since recovery in the
debt-strapped euro zone still appears a long way off.
The array of positive news far outweighed a report showing a
surprise contraction in U.S. factory activity.
"There was much more positive news today than negative and
that is why the euro has strengthened," said Charles St-Arnaud,
foreign exchange strategist at Nomura Securities in New York.
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.
"The spreads on Spain's debt versus Germany's have
compressed substantially, which has also helped the euro, but it
also takes pressure off of Spain to ask for a full government
bailout," St-Arnaud said.
The euro climbed to $1.3076, its highest since Oct.
22, before paring gains to last trade up 0.5 percent on the day
at $1.3051. Traders said stop-loss orders were triggered on the
break of $1.3030, which accelerated the move higher.
Some US$5.093 billion in euros changed hands on the first
trading day of December, compared with US$3.169 billion on the
first day of November and US$5.2 billion on October 1, using
Reuters Dealing data.
If Spain requests a government bail-out, the euro should
rally even further as it sets the stage for the European Central
Bank to buys its bonds.
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 buy-back 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.
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 yen has been under pressure on expectations that a
likely change in Japan's government later this month would lead
to aggressive monetary easing.
The dollar last traded down 0.3 percent against the
yen at 82.25.