* Euro short-covering seen as having run its course for now
* Focus on euro zone finance ministers meeting
* Talk of Japanese exporters selling euro vs yen
By Hideyuki Sano and Masayuki Kitano
TOKYO/SINGAPORE, Jan 17 (Reuters) - The euro hovered below a
one-month high on Monday, with market players saying clearer
signs of progress on the euro zone's sovereign safety net are
needed for the currency to make significant gains.
Traders suspect a large portion of the bets against the euro
were cleared in a big bout of short-covering last week,
suggesting limited gains in the near-term.
Europe responded to the debt crisis that has forced Greece
and Ireland to take bailouts with a safety net fund that can
borrow on the market with euro zone government guarantees of up
to 440 billion euros, but analysts say a new package of
anti-crisis measures is both essential and urgent.
Attention is focused on the euro zone's finance ministers'
meeting on Monday, where an increase in the effective lending
capacity of the rescue fund is expected to be dominate
discussion.
"There could be a further upside for the euro if confidence
in the rescue scheme grows. But I think the euro has already
risen to pretty good levels," said a trader for a Japanese trust
bank in Tokyo.
The euro fell 0.4 percent to $1.3332 , off a one-month
high of $1.3458 hit on Friday. The euro's rally last week
stalled after it rose on Friday to levels above $1.3404, a 38.2
percent retracement of its November to January slide.
Traders said euro-selling by Japanese exporters was a factor
weighing on the single European currency, which fell 0.4 percent
to 110.54 yen , down from Friday's one-month high of
110.99 yen.
Uncertainty about whether Germany would support an increase
in the lending capacity of the rescue fund, known as the
European Financial Stability Facility (EFSF), clouded the euro's
outlook.
Market players want to see enough common ground among the
euro zone's finance ministers to suggest that some kind of
agreement is possible in coming months, said Robert Ryan, FX
strategist at BNP Paribas in Singapore.
"Unfortunately, what we got out of Germany over the weekend
suggests that it's going to be very difficult. It looks like the
politics in Germany are going to limit (German Chancellor
Angela) Merkel's ability to enlarge the fund significantly,"
Ryan said.
"I don't expect any boost to the euro today from the
meetings, and the best I think we can hope for is no negative
comments," Ryan added.
The euro staged a sharp comeback last week from a
four-month low of $1.2860, helped by solid debt auctions from
Spain and Portugal, hawkish comments on inflation from Trichet
and hopes that euro zone policy makers may expand their rescue
funds.
YIELD DIFFERENTIALS SUPPORTING EURO
One supporting factor for the currency is its increasing
yield advantage over the dollar after two-year German short-term
bond yields jumped last week following Trichet's
comments on inflation.
That helped to push up the gap between two-year German and
U.S. yields to the highest level since late November, when the
euro was at around $1.37.
"In terms of yield differentials, the euro could rise a bit
more," said Koji Fukaya, chief FX strategist at Credit Suisse.
"But market players would need more euro positive factors to
go long on the euro. It seems difficult to see the euro rising
above $1.35 in the short term," he added.
Many market players expect the currency to meet hefty
resistance around $1.35, its Dec. 14 high. Its 90-day moving
average comes in at $1.3489.
The dollar was fetching 82.90 yen , up 0.1 percent
from late U.S. trade on Friday and within its well-worn range in
the past weeks.
The Australian dollar dipped 0.2 percent to $0.9870
, having fallen sharply on Friday after China's central
bank raised lenders' required reserves by 50 basis points,
though it is off last week's one-month low of $0.9803.
(Editing by Alex Richardson)
