* Euro shows few signs of fatigue after two-week rally
* Aussie falls after CPI rises much less than expected
* Rise in euro zone interest rates supports euro
* Dollar further pressured by renewed risk appetite
By Hideyuki Sano
TOKYO, Jan 25 (Reuters) - The euro held firm near a two-month
peak on Tuesday, showing only the barest signs of fatigue after a
rally in the past two weeks, as climbing euro zone interest rates
prompted speculators to bet on further gains in the currency.
The Australian dollar fell broadly after lower-than-expected
consumer inflation data reinforced market expectations that
Australia's central bank will be in no hurry to lift interest
rates, though it cut much of its losses in late Asian trade.
The single currency last traded at $1.3650 <EUR=>, having
risen as high as $1.3685, just one pip off a two-month peak
marked in New York on Monday.
The move brings into play the next major resistance level, at
$1.3742, a 61.8 percent retracement of the Nov-Jan fall, and then
the euro's Nov. 22 high of $1.3786.
Underpinning the single currency were growing expectations
that the European Central Bank will lift interest rates ahead of
the U.S. Federal Reserve, after recent tough talk on keeping
inflation in check by ECB chief Jean Claude Trichet.
In contrast, the Fed, more worried about creating jobs, is
set to keep a cautious view on U.S. economic recovery after its
policy-setting meeting on Wednesday.
That helped to push the yield spread between two-year German
and U.S. bonds to its highest level in two years last Friday, at
0.67 percentage point. On Tuesday it remained near that peak,
standing at 0.65 percentage point.
Given the euro/dollar's close historical relationship with
the yield spread, some analysts say the euro, which is still only
around a two-month high against the dollar, has more room to gain
in the near term.
The common currency has been persistently supported by
robust demand from Asian central banks, which spurred buying
from real-money accounts and prompted the speculative market to
reverse bearish positions in an abrupt turnaround last week.
Michael Woolfolk, strategist at BNY Mellon, said market
flows remained supportive of the euro.
"More generally, investor optimism about euro zone
policymakers' determination to continue working toward
enhancing the European Financial Stability Facility and finding
a longer term resolution to the region's sovereign debt crisis
remains in place," he said.
Some market players also said hopes of euro-demand from Asian
investors who want to buy EFSF's inaugural bonds due to be
launched later on Tuesday bolstered the currency.
The euro was also helped by buying against the Australian
dollar, which came under broad selling pressure after Australian
consumer prices rose by far less than expected in the last
quarter. []
The euro climbed 0.2 percent against the Aussie to A$1.3700
<EURAUD=R>, edging back towards a two-month high around $1.38 hit
on Monday.
The euro fetched 112.50 yen <EURJPY=R>, flat on the day and
near a two-month high of 112.91 yen marked on Monday and handily
above its 200-day moving average, currently at around 112.20.
Still, after a sharp gain in the past two weeks, which lifted
the euro some 6 percent on the dollar from $1.2860 on Jan. 10,
some analysts warn the rally might soon lose steam.
"The euro has rebounded after the debt auctions in Spain and
Portugal went well earlier in the month. But euro zone periphery
countries' growth outlook hasn't really improved," said Seiya
Nakajima, chief economist at Itochu Corp.
STAYING SCEPTICAL
Some market players also remained sceptical about the chance
of an ECB rate hike, thinking that concerns about highly
indebted peripheral euro zone countries could tie the central
bank's hands.
Still, as the euro continued to recover, the dollar index
<.DXY> <=USD> dangled near a 2-
