* Noda says Japan will use reserves to buy EFSF bonds
* Investors sceptical Japan plan will boost euro buying
* Portugal under pressure to accept financial aid package
(Adds quote, details, updates prices)
By Naomi Tajitsu and Anirban Nag
LONDON, Jan 11 (Reuters) - The euro pared gains made on
Tuesday as investors were sceptical a pledge by Japan to buy
bonds planned by a European rescue fund would result in fresh
buying in the single currency.
Investors initially saw Tokyo's promise to buy the bonds as
a show of support for Europe's struggle to tame its debt crisis.
The bonds are expected to be issued by the European Financial
Stability Facility (EFSF) later this month, and will be used to
finance Ireland's bailout plan.
But Finance Minister Yoshihiko Noda's suggestion that Japan
would use euro cash holdings to buy the bonds dampened some of
the initial excitement from traders who thought the move might
involve fresh buying of the European currency. [].
As a result, the euro was unable to hold on to initial gains
made on the announcement, analysts said.
"The market sees it as a reallocation of existing euros,
rather than fresh net buying," said Chris Turner, currency
strategist at ING.
"It's encouraging in a way, but the EFSF is well capitalised
and the debt is triple A, so there was never really a concern
that they would have any problems issuing the debt."
Tokyo's pledge came after China assured Spain it would
invest in the indebted euro zone state's bonds -- an assurance
whose impact also proved fleeting.
The euro last traded at $1.2940 <EUR=>, unchanged from late
New York levels, having risen as high as $1.2992 after Noda's
comments. Resistance is at its 200-day moving average of $1.3072
while support is at $1.2794, the 61.8 percent retracement of a
June-to-November rally.
Given mounting unease over a heavy schedule of debt issuance
by southern European countries this week, the euro could easily
resume its downward path, analysts said.
FOCUS ON PORTUGAL
The focus this week is on a Wednesday debt auction that will
signal whether Portugal will be able to afford to raise funds in
the debt market or be forced to turn to the European Union and
International Monetary Fund for financial aid.
Markets have already pushed the 10-year Portuguese yield to
punishingly high levels above 7 percent <PT10YT=TWEB>.
Portugal's prime minister and finance minister said on
Tuesday Portugal has no plans to seek a bailout, and the
government was doing everything possible to avoid doing so.
[]
Italy and Spain are also due to tap the bond market on
Thursday, in auctions that will also be closely watched for any
sign of contagion. [].
Analysts said the euro could gain once the three bond
auctions were out of the way, though if borrowing costs stayed
high any gains would be temporary as attention would turn to
when a call for outside assistance might come.
"The euro may see a bounce -- a knee-jerk one -- if these
auctions see a good bid-to-cover ratio," said Jeremy Stretch,
head of currency strategy at CIBC World Markets. "But success
will come at a price."
The euro climbed on the crosses, rising to 107.86 yen
<EURJPY=R> from a four-month low of 106.83 yen set on Monday. It
gained 0.2 percent to 1.2530 Swiss francs <EURCHF=R>.
The dollar index <=USD> <.DXY>, was flat at 80.890, while
the dollar rose 0.3 percent on the day to 82.98 yen <JPY=>,
supported by Japanese importers' bids.
The Australian dollar <AUD=D4> shed more than 1 percent to a
one-month low of $0.9820, on speculation that more floods in the
country may dent its economic growth.
The Swedish crown rallied to a seven-year high versus the
euro of 8.8770 crowns per euro <EURSEK=D4>, as investors
continue to flock to the crown due to Sweden's economic strength
and healthy fiscal position.
