* Euro recovers slightly vs dlr but still close to 7-mth low
* Stronger PMI data, narrowing bond spreads provide support
* Dollar index close to 6-mth high
(adds quotes, detail)
By Neal Armstrong
LONDON, Feb 1 (Reuters) - Stronger-than-expected euro zone
PMI data and a slight tightening in bond spreads pushed the euro
higher on Monday, but it hovered close to seven-month lows on
concerns over the indebtedness of some euro zone countries.
The dollar steadied but stayed close to a six-month high
versus a currency basket after Friday's stronger-than-forecast
gross domestic product data indicated the United States was
recovering faster than the euro zone and Japan.
U.S. President Barack Obama's budget projected a record
deficit in 2010, but traders said it had little currency impact.
[].
Analysts said the euro remained the most vulnerable currency
as concern persisted about the fiscal position of countries such
as Greece and Portugal. However, a slight tightening in
peripheral euro zone government bond yield spreads over German
Bunds helped sentiment. [].
"There has been an easing of the tensions with regard to
Greece and Portugal (as seen in narrowing spreads) and the euro
is a little higher as a result," said Bank of New York Mellon's
head of currency research, Simon Derrick.
EU Economic and Monetary Affairs Commissioner Joaquin
Almunia said in a Reuters interview that Greece's fiscal cutback
plans were "ambitious but achievable". [].
By 1155 GMT, the euro traded just off the day's high at
$1.3900 <EUR=>, up 0.2 percent, but still not far from an
earlier low of $1.3852 on trading platform EBS, its weakest
since early July.
Traders said the next downside level to watch was $1.3850,
where a large option barrier was said to reside, being protected
by a sovereign name.
For a graphic comparing Greek spreads and the euro/dollar
exchange rate, click on
http://graphics.thomsonreuters.com/0210/EZ_EURGR0210.gif
Above-forecast final euro zone PMI data also gave a boost to
the single currency [].
POSITIONING
The latest data from the Commodity Futures Trading
Commission showed speculators increasing bets against the euro
in the week to Jan. 26 and going long on the dollar to reverse a
net short position the previous week [].
The dollar index, a measure of the greenback's performance
against six major currencies, was slightly weaker at 79.387, off
an earlier high of 79.534 <.DXY>, its strongest since late July.
For a graphic comparing IMM positioning and the euro/dollar
exchange rate, click on:
http://graphics.thomsonreuters.com/0210/EZ_ERCFTC0210.gif
"The latest IMM data showed euro-dollar shorts were perhaps
overextended, with this morning's PMI number providing an excuse
for some short-covering, though overall the euro still looks
vulnerable," said Mark Oswald, FX and rates strategist at
Monument Securities.
Charts show the dollar index has a target just above 80, a
38.2 percent retracement of its fall between March and late
November, the outlook already positive after the recent break
above the 200-day moving average.
Among higher-yielding currencies, the Australian dollar
<AUD=D4> fell 0.4 percent against the dollar to $0.8805 and by
0.5 percent against the yen <AUDJPY=R> to 79.45 yen.
The Aussie earlier fell to its lowest since mid-December
versus the dollar and the yen as investors unwound yen-funded
carry trades on a report citing Adair Turner, chairman of
Britain's Financial Services Authority, saying such trades were
"economically valueless". []
"There is some focus on the Turner comments, which has had
an impact on the Aussie and the kiwi. This was multiplied by
continued upward pressure on monetary policy in China which has
a negative impact on demand for commodity currencies," said
BNYM's Derrick.
The Reserve Bank of Australia is expected to raise interest
rates by 25 basis points on Tuesday. A Reuters poll showed all
20 economists predicting a hike []. Markets price in a 69
percent chance of a hike.
(Additional reporting by Jessica Mortimer)
