* Euro extends gains vs dollar after Greek bond buyback
* Dollar weakens on U.S. fiscal deadlock
* Yen recovers after recent slide; Aussie, Canadian dlrs
NEW YORK, Dec 4 The euro rallied to a near
seven-week high against the dollar on Tuesday after Greece
announced better-than-expected terms for its debt buyback,
fueling optimism Athens will continue to receive international
aid to avoid a default.
The U.S. dollar remained pressured against most major
currencies as uncertainty persisted over whether Republicans
would reach a deal to prevent spending cuts and tax increases
that could push the U.S. economy back into recession.
But the good news came from Greece which said it would spend
10 billion euros to buy back bonds at a price range that topped
market expectations. The news helped push Italian and Spanish
bond yields lower.
The buyback is part of a deal reached last week by Greece's
international lenders to cut its debt and needs to be completed
before the IMF can release its share of the aid.
"There's some optimism around the Greek buyback," said Eric
Viloria, senior currency strategist at Forex.com in New York.
"That's seen as sort of the last major risk event for some time.
"Technically, it looks like (the euro) does have some more
room to the upside."
The euro rose 0.3 percent to $1.3092, having risen as
high as $1.3107 on Reuters data, the strongest since Oct. 18.
Further chart resistance is located at the October high around
$1.3140 and the September high around $1.3170.
Some US$5.1 billion in euros had already changed hands on
Tuesday with a few hours left in New York trade compared with
$4.68 billion during the entire global trading day on Monday
, using Reuters Dealing data.
"The market is taking a fairly optimistic view that we will
see a smooth implementation of these (Greek) plans," said Ian
Stannard, head of European FX strategy at Morgan Stanley in
He expected the euro to hold firm until the end of the year
but warned it could come under selling pressure in 2013 due to
the deterioration in the broader euro zone economy.
Morgan Stanley recommended clients enter a long euro/dollar
position at $1.3050, with a target of $1.34.
Worries over efforts to avert the U.S. "fiscal cliff"
hobbled the dollar despite its reputation as a refuge in times
of uncertainty. Analysts said the dollar had stayed weak because
of relatively positive developments in the euro zone.
The White House dismissed Republican proposals for steep
spending cuts late on Monday, heightening concern lawmakers will
not reach a deal in time to avert $600 billion in automatic
budget measures due in early 2013.
"At the moment the market is ... likely expecting a
last-minute fudge maybe with some delays and some temporary
measures to tide them over to next year," Morgan Stanley's
CENTRAL BANK DECISIONS
The Canadian dollar rose against the U.S. dollar after the
Bank of Canada held interest rates steady and kept its rate rise
bias. The U.S. dollar fell 0.2 percent
The Reserve Bank of Australia cut its main cash rate to 3.0
percent, bringing the easing since May to 125 basis points and
matching the trough hit during the darkest days of the global
But the Australian dollar rallied 0.5 percent to $1.0470
as traders said the rate cut was well discounted. Some
had speculated a bigger 50-basis-point cut.
"Although the yield on the Aussie continues to contract,
(it) still carries the highest rate in the industrialized world
and as such will likely remain bid," Boris Schlossberg, managing
director of FX Strategy at BK Asset Management in New York,
wrote to clients.
The Swiss franc weakened, extending Monday's fall when
Switzerland's largest banks said they would charge for some
franc deposits. This pushed the euro to its highest
since mid-September. The euro was last up 0.4 percent at 1.2128
The dollar shed 0.6 percent to 81.78 yen, further
retreating from a 7-1/2-month high of 82.82 hit last month.
The yen has recovered from a recent slide sparked by the
prospect of more monetary easing by the Bank of Japan after a
Dec. 16 election. Some investors said there may be little scope
for further falls.
"We saw an incredible amount of yen weakness in November and
this is running out of steam simply because we don't see any
additional news flows out of Japan," said Ulrich Leuchtmann,
head of FX research at Commerzbank.