* Euro highest since November, rally expected to fade
* Dollar struggles, index hits lowest since November
* Aussie at 4-wk high vs dollar, sterling 2-1/2-month high
(Adds comments, updates prices, changes byline, dateline,
previous LONDON)
By Wanfeng Zhou
NEW YORK, Feb 1 (Reuters) - The euro rose on Tuesday to its
highest level against the dollar in more than two months after
solid euro zone economic data, though the rally could start to
fade given lingering worries over the region's debt problems.
Easing concern over political unrest in Egypt also helped
boost the euro zone single currency. Analysts cautioned,
however, that it's premature to conclude that the global
fallout would be contained.
The euro climbed above key resistance around $1.3740, the
38.2 percent Fibonacci retracement of its November-January
fall. Traders said the move opened the way to a run toward
$1.40, a level that likely will attract selling interest.
"To me euro anywhere near $1.40 is probably a sell if we
get up there," said Firas Askari, head of FX trading at BMO
Capital Markets in Toronto. "I still think there are some core
fundamental issues in Europe that have not been addressed."
"When the whole world starts buying and talking about the
strength of the euro, it's probably a good time to start fading
it," he said.
The euro <EUR=EBS> rose as high as $1.3776 on trading
platform EBS, its strongest since late November, before edging
back to $1.3759, up 0.5 percent on the day.
The Australian dollar <AUD=D4> rallied 1 percent on the day
to a four-week high of $1.0086 after the country's central bank
ended its monthly policy meeting with a generally upbeat
assessment of the domestic and global economy. For more see
[].
Traders said demand from Middle Eastern investors helped
lift the euro while Asian sovereigns were also seen buying back
euro positions sold earlier in the day, as well as buying
Australian dollars.
"Major currencies are ganging up on the dollar at the
moment. The euro, Aussie and sterling all have their own
independent reasons for rising which are all anchored to signs
of stronger growth," said Gavin Friend, currency strategist at
nabCapital.
HAWKISH ECB
Data on Tuesday showed a fall in Germany's jobless rate and
strong final readings of purchasing managers' surveys,
supporting the view the overall euro zone recovery is
progressing. [] and [].
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For link to German PMI data []
For link to euro zone PMI data []
For link to UK PMI data []
Graphic on global inflation http://r.reuters.com/wuz46r
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
In the wake of Monday's above-forecast euro zone inflation,
the PMI surveys also showed rising price pressures, adding to
expectations that European Central Bank President Jean-Claude
Trichet will keep a hawkish tone on Thursday. []
"Relative rate spreads are still favoring the euro to the
dollar," said John Hydeskov, currency strategist at Danske.
Implied interest rate futures <ECBWATCH> suggest a nearly
80 percent possibility the ECB will raise rates by 25 basis
points in August from the current record low of 1.0 percent.
Investors now widely expect the Federal Reserve to lag far
behind other central banks -- notably the European Central Bank
and the Bank of England -- in raising interest rates.
Speculation that rates will rise faster in Europe than in
the United States has kept the two-year yield spread between
German <DE2YT=TWEB> and U.S. government bonds <US2YT=RR> at
around 80 basis points, its widest in two years.
The dollar <JPY=EBS> slipped to a four-week low around
81.47 yen on EBS, while an index of the U.S. dollar against a
basket of other currencies fell as low as 77.294 <.DXY>, its
weakest since early November.
Sterling <GBP=D4> jumped to a 2-1/2-month high of $1.6143
after UK manufacturing PMI hit a record high in January,
boosting expectations for a UK rate rise by mid-year. It was
last up 0.6 percent at $1.6102.
(Additional reporting by Naomi Tajitsu in London; Editing by
James Dalgleish)
