* Euro hits 4-mth low vs GBP, recovers from 2-yr low vs AUD
* China c.bank bill auction suggests pick up in fund draining
* JAL expected to file for bankruptcy, may lift yen
By Satomi Noguchi
TOKYO, Jan 19 (Reuters) - The euro fell to a four-month low
against sterling on Tuesday but signs that China is stepping up
quantitative tightening helped it recover from a two-year trough
versus the Aussie, with investors trimming positions in riskier
assets such as growth-linked currencies.
Sterling hit a six-week high against the dollar, drawing
strength after reports that U.S.-based Kraft Foods Inc and
Britain's Cadbury Plc were arranging a $19 billion deal to create
the world's largest confectionery group, traders said.
The result of a bill auction by the Chinese central bank
sparked renewed worries over a stepping up of tightening, traders
said.
The move came after China's surprise increase of banks'
required reserves last week, which was the strongest step to date
by the central bank as it starts to normalise monetary policy
from very loose conditions.
"The latest move reflects China's strong intention to rein in
real estate bubbles," said Hideki Amikura, deputy general manager
of the forex section at Nomura Trust Bank.
"The action itself is not necessarily negative for growth,
but Asian stocks, especially Australian shares, are reacting
sensitively to the move due to their strong economic ties and
their recent gains have been heavily capped," said Amikura.
He added that struggling Asian shares were denting the
Australian dollar.
At a meeting of eurozone finance ministers on Monday, Greece
received the group's backing in tackling its debt troubles, even
as they pressed the country to do more on its own..
The news on Greece was enough to help the single currency
edge up 0.1 percent to $1.4395, pulling away from $1.4335 hit on
Monday on trading platform EBS.
Greece's ballooning budget deficit and debt of more than 120
percent of gross domestic product has triggered downgrades by
debt rating agencies and hurt the euro in the past few months.
The euro earlier fell against the Australian dollar near an
over two-year low of A$1.5496 struck the previous day but
rebounded later to trade up 0.3 percent at A$1.5571.
The euro dropped to a four-month low of 87.63 pence, down
about 0.5 percent on the day, with support seen around 87.41
pence. Charts indicate a daily close below there would generate a
bearish long-term trend reversal targeting 85.20 and eventually
84.54.
The pound rose to a six-week high of $1.6422, supported by
firmer UK housing data and speculation of more M&A-related
inflows.
The Aussie dollar fell 0.2 percent to $0.9242, and dropped
0.5 percent to 83.60 yen.
The dollar index, a gauge of the greenback's performance
against six other major currencies, was down slightly at 77.001.
The dollar was 0.3 percent down at 90.50 yen, hovering at
four-week lows. Japan Airlines is expected to file for bankruptcy
later in the day, and traders speculated that could lead to some
yen repatriation.
Market participants have speculated the company may have to
liquidate some of its dollar-buying derivative contracts or
repatriate overseas assets after a possible bankruptcy filing.
(Additional reporting by Kaori Kaneko; Editing by Edwina Gibbs)
