* Euro <EUR=> down 0.7 percent vs dollar at $1.3620
* Doubts over euro zone policy measures dent sentiment
* Sterling falls after BoE hols interest rates, as expected
(Adds dropped words 'as well as' to quote in paragraph 9)
By Neal Armstrong
LONDON, Feb 10 (Reuters) - The euro slipped against the
dollar on Thursday as nagging doubts over a lack of concrete
policy measures to tackle the euro zone debt crisis hit
sentiment and pushed peripheral debt yields up.
Sterling fell to a session low against the dollar after the
Bank of England held interest rates at a record low 0.5 percent.
The decision was widely expected, but markets had been pricing
in a small possibility of a rate hike. []
The single currency struggled after the yield on 10-year
debt issued by Portugal, seen at risk of becoming the next euro
zone country to need a bailout, hit an all-time high, widening
the spread over its safe-haven German equivalent.
Traders said an Asian sovereign account sold euros
persistently in early European trade, as market participants
speculated that Asian demand for the single currency seen
earlier in the week had petered out.
The euro's upward momentum has fizzled as investors wait
until March for details of additional steps to tackle the euro
zone's debt crisis, while markets pare back speculation of a
near-term rise in euro zone interest rates.
Analysts say renewed concern that bond investors may be
forced to take haircuts on debt issued by weak euro zone
countries holdings could also dampen euro sentiment.
Higher-yielding debt from some euro zone issuers came under
selling pressure but traders said bond buys from the ECB helped
to calm jitters. []
"It looks as if the market has got a bit ahead of itself
with the euro as concrete policy measures to address the debt
crisis are unlikely to materialise before the end of March,"
said Raghav Subbarao, currency strategist at Barclays Capital.
"There are also downside risks that the ECB may not be
prepared to hike rates as well as the potential that bondholders
may be forced to take debt haircuts," he added.
The euro <EUR=> was down 0.7 percent against the dollar at
$1.3620, having risen to $1.3745 in U.S. trade on Wednesday.
In addition to Asian names, an east-European sovereign name
was seen selling the euro. But traders said Middle-Eastern
accounts were buying around the day's low of $1.3616, while key
support was the 100-day moving average at $1.3541.
Implied options volatilities in euro/dollar, a measure on
the market's view of how much the pair will move in the future,
were trading with a heavy feel. The one-month <EUR1MO=> slipped
to a five-month low around 10.45 percent.
Sterling <GBP=D4> slipped around 40 pips to a session trough
of $1.6012 before pulling back to $1.6060, 0.3 percent lower on
the day.
The fall in the euro helped the dollar index to rise 0.6
percent on the day to 78.100. The U.S. currency was up 0.5
percent at 82.80 yen <JPY=>.
The dollar rose broadly, but traders were wary about bidding
it up too far after Federal Reserve Chairman Ben Bernanke gave
no indication that the central bank would cut short its bond
buying programme, let alone raise interest rates down the road.
RATE VIEW SUPPORTS EURO
The euro showed little initial reaction to comments from
European Central Bank board member Axel Weber, who reiterated
the ECB's commitment to price stability.
Weber declined to comment on his own future, after reports
that he is no longer a candidate to succeed Jean-Claude Trichet
as president of the ECB, which has added to doubts that euro
zone rates would rise in the near future. []
Some analysts argue that while the ECB may not raise rates
immediately, a hike in the coming months remains a possibility
as the central bank has highlighted its pledge to maintain price
stability as inflation expectations gather pace.
Kathleen Brooks, research director at FOREX.com, said such a
view would provide some support the euro in the near term.
"Bar another shock from the sovereign debt crisis (like
Spain needing a bailout), swap rates should remain supported and
the euro should continue to trade with a bullish tone," she said
in a note.
But she added: "Although the pace of gains especially above
$1.3800 and towards $1.4000 may slow as the prospect of ECB
hikes get pushed out to the future."
(Additional reporting by Naomi Tajitsu; Editing by Hugh Lawson)
