* Euro's rises seen limited in short term
* Portuguese bond sale eyed, followed by Spanish auction
* Aussie hits 1-month low on worries over floods
By Hideyuki Sano
TOKYO, Jan 12 (Reuters) - The euro made thin gains on
Wednesday, extending this week's rebound but with limited ability
to rise much as caution gripped the market ahead of debt sales by
highly indebted euro zone countries.
Portugal is due to tap bond investors on Wednesday while
Spain is looking to sell up to 3 billion euros ($3.89 billion)
worth on Thursday. Markets are keen to see if they can obtain
funding at a sustainable cost or if they will be forced to turn
to the European Union and IMF for help.
"If Portugal has to pay over 7 percent it will be inevitable
for it to ask for help," said a trader at a Japanese bank.
For now though the common currency is enjoying a reprieve
after euro zone sources said the region's finance ministers are
likely next week to consider the option of raising the effective
lending capacity of the currency bloc's rescue fund as part of
efforts to calm jittery markets. []
This follows Japan's promise to support an upcoming euro zone
bond sale and talk the European Central Bank had bought debt to
help stabilise markets.
The common currency ticked up 0.1 percent to $1.2983 <EUR=>,
and kept gains from a four-month trough of around $1.2860 hit on
Monday.
But it was off the day's high of $1.3017 marked after
attempts to take out stop-loss orders said to be lurking above
$1.30.
The dollar's weakness against Asian and other emerging
economy currencies is indirectly helping the euro, a U.S. bank
trader said.
Further resistance is seen at its Dec. 23 low of $1.3055 and
the 200-day moving average around $1.3070, and many traders see
little chance of the euro rising above those levels in the near
term.
BNP Paribas strategists said in a report that they expect the
euro's rise to remain limited to $1.3000/40, which would provide
renewed selling opportunities with a target for a break below
$1.2875 and then $1.2590.
In the options market, however, risk reversal spreads stood
at 0.75/1.5 percent in favour of euro puts <EUR1MRR=GFI>, near
the lowest level in two months, meaning euro puts, which give
investors protection against falls in the euro, are at their
cheapest level in two months relative to euro calls.
An options trader at a Japanese bank said flows related to
exotic options such as no-touch options may be behind this.
DEBT AUCTIONS
The immediate focus is on Wednesday's debt sale by Portugal,
widely seen as the next euro zone weakling to seek a bailout
after Greece and Ireland.
Lisbon, which plans to sell up to 1.25 billion euros ($1.62
billion) in four- and 10-year bonds, will likely need to offer
record high premiums to place its debt. []
Recent bond buying by the European Central Bank helped drive
down the yield on Portugal's benchmark 10-year bond <PT10YT=TWEB>
to below 7 percent on Tuesday from euro lifetime highs of 7.3
percent last week.
Against the yen, the single European currency was flat at
108.00 yen <EURJPY=R>, but well off four-month lows around 106.81
set on Monday.
As the euro won a reprieve, the dollar index <=USD> <.DXY>,
which tracks the performance of the greenback against a basket of
major currencies, slipped 0.2 percent to 80.63, off a five-week
high around 81.313 set on Monday.
Versus the yen, the dollar slipped a tad to 83.08 yen <JPY=>,
though it held well above this week's low around 82.66, with
gains in global stocks weighing on demand for the yen.
Meanwhile, the Australian dollar hit a fresh one-month low
around $0.9803 <AUD=D4>, though option triggers at $0.98 and
upbeat Australian housing data helped it limp back to $0.9860.
Mounting worries that massive floods in northeast Australia
could hamper growth were taking a toll on the Aussie, knocking it
further from a 28-year high around $1.0250 set on Dec. 31.
Warwick McKibbin, a Reserve Bank of Australia board member,
was quoted in the Sydney Morning Herald as saying the floods
could cut economic growth by up to 1 percentage point.
Estimates by other economists were less grim, though, with
many expecting the floods to at most knock 0.5 percentage point
off growth. []
($1=.7714 Euro)
(Additional reporting by Ian Chua in Sydney, Chikako Mogi in
Tokyo, Reuters FX analysts Krishna Kumar in Sydney and Rick Lloyd
in Singapore; Editing by Joseph Radford)
