October 15, 2012 / 3:37 AM / 5 years ago

Euro flat vs. dollar, awaiting word that Spain seeks help

NEW YORK (Reuters) - The euro ended flat against the dollar on Monday in a day of volatile trade, as investors awaited clarity on when Spain may request a bailout that would set the stage for the European Central Bank to lower its cost of borrowing by buying its debt.

A one Euro coin is placed over one dollar notes in this illustrative photograph taken in Madrid November 17, 2011. REUTERS/Sergio Perez

Uncertainty over when Madrid will ask for financial aid and whether Greece can agree on new austerity measures with its indebted lenders has discouraged some investors from buying the euro in recent weeks.

But expectations that the euro zone common currency will rally once Spain seeks a rescue package have kept market players from betting heavily against it.

As a result the euro has been trapped in a tight range roughly between $1.28 and $1.31 since mid-September, with options barriers cited below $1.28.

German Chancellor Angela Merkel said on Monday she agreed with her finance minister, Wolfgang Schaeuble, that there would not be any “uncontrollable developments” in the euro zone, like a Greek default or exit from the single currency bloc.

The head of the International Monetary Fund, Christine Lagarde, holds the view that Greece should get more time to meet its bailout targets.

“Spain has yet to request a bailout, and the IMF suggestion of a rescheduling of repayment terms for Greece has received mixed support,” said Eric Theoret, currency strategist at Scotiabank in Toronto.

The euro was last flat at $1.2954, recovering from a low of $1.2889 on reported buying by sovereign investors and companies. The session peak posted at $1.2943.

The ECB has said it will buy bonds of countries that apply for a bailout. In Spain’s case, such a move would bring down the country’s borrowing costs and probably spark a broader increase in investor appetite for risk.

Euro zone officials said Spain could ask for financial aid from next month. The request would probably be dealt with alongside a revised loan program for Greece and a bailout for Cyprus in one big package.

Adding to headwinds for the euro, Italian Finance Minister Vittorio Grilli was quoted as saying on Monday that a 100-billion-euro aid request from Spain to its euro zone partners would cost Italy the equivalent of 1.5 percent of its economic output.

The next focus for investors is a European Union summit this week at which the focus will be on Spain and Greece.

While Greece’s prime minister, Antonis Samaras, has said his country is likely to agree to a new austerity package with international lenders at the meeting, a formal request by Madrid for aid is not expected.

“With no important data due the rest of today, headlines out of Europe will be the main driver over the coming 24 hours,” said Christopher Vecchio, currency analyst at DailyFX in New York.

Euros worth some $4.488 billion changed hands using Reuters Dealing, compared with $5.7 billion on Friday.

Data over the weekend showed China’s exports grew at roughly twice the rate expected in September, while imports also increased, possibly indicating that measures to spur growth in the world’s second-biggest economy are working.

That briefly helped demand for riskier assets such as commodity currencies like the Australian dollar. The Aussie later edged down 0.1 percent on the day to $1.0254.

The dollar rose 0.3 percent against the yen to 78.68 yen.

The dollar rose to a one-week high against the yen after data showed U.S. retail sales rose in September as Americans bought more cars and gasoline.

Reporting by Nick Olivari; Editing by James Dalgleish

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