* Euro weighed down by worsening debt woes
* Aussie hits 4-week low on RBA, North Korea
* Dollar hits 7-week high vs yen, eyes 85 yen
By Hideyuki Sano
TOKYO, Nov 26 (Reuters) - The euro hovered near a two-month
low against a broadly recovering dollar on Friday as a relentless
rise in euro zone countries' bond yields fanned worries over
their debt financing.
The Australian dollar tumbled after the Australian central
bank quashed chances of an imminent rate hike while Japan's yen
hit a seven-week low against the the U.S. dollar, with fresh
sabre-rattling by North Korea helping the U.S. currency.
"We've been hearing one piece of bad news after another from
the euro zone lately. There's even talk of a breakup of the euro
zone," said Tsutomu Soma, manager of foreign securities at Okasan
Securities.
A majority of euro zone nations and the European Central Bank
are urging Portugal to apply for a financial bailout from a
European rescue fund, Financial Times Deutschland reported on
Friday. []
"I think Portugal has already crossed the point of no return.
Its bond yield has gone beyond a sustainable level. The market is
now watching whether Spain will need a rescue," said a Japanese
bank trader.
The euro fell 0.4 percent to $1.3311 <EUR=>, within striking
distance of Wednesday's two-month low of $1.3284.
Traders believe the euro will have more opportunities to test
the downside, with a break below the latest trough seen putting
the single currency's trendline support at $1.3230 as the next
target, followed by its 200-day moving average around $1.3135.
A break below the 200-day moving average could be seen as
more evidence of medium-term weakness after its move below major
support, including a 38.2 percent retracement of its rally from
June to early November.
The euro's rally earlier this year was in part helped by the
fact that the European Central Bank was seeking an exit strategy
from its loose policy, in contrast with the U.S. Federal Reserve
and the Bank of Japan, which took more easing steps in recent
months.
But some market players said that may change soon.
"Because of the debt woes, euro zone countries will now have
to tighten their fiscal policy, which will dent growth and put
pressure on the ECB to give up its search for an exit sooner or
later," said Daisuke Karakama, a market economist at Mizuho
Corporate Bank.
"The ECB may say it will extend its offer of unlimited
liquidity as early as its next policy meeting (next Thursday),"
Karakama said. The ECB extended the measure to early 2011 in
September.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
TAKE A LOOK- Europe's debt problems []
Euro zone debt struggle http://link.reuters.com/dah65q
Multimedia on Euro zone crisis http://r.reuters.com/hus75h
EU bailout graphic http://link.reuters.com/fac76q
Euro zone debt graphic http://r.reuters.com/hyb65p
Interactive timeline http://link.reuters.com/nyx95q
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Further boosting the dollar, North Korea said impending
military exercises by the South and the United States were
pushing the region towards war, days after it launched its
heaviest bombardment since the 1950-53 Korean War.
[]
The Korean won fell more than 1.5 percent while Korean shares
also dropped 1.3 percent, losing much of the ground they had
recovered in the past two days.
The dollar <JPY=> rose 0.3 percent to 83.83 yen, having
briefly touched 83.89 yen, a level last seen in early October,
rising further from a 15-year low of 80.21 yen hit at the
beginning of this month.
Rising optimism on the U.S. economy was favouring the dollar,
with a fall in U.S. jobless claims published on Wednesday
fuelling speculation that next week's payroll data could be
strong as well, traders said.
The dollar has also risen well above major resistance at the
top end of its ichimoku cloud, which is considered a major
bullish sign.
Many traders said the dollar could rise to 85 yen and some
even see a test of 85.94 yen, hit right after Japan's unilateral
yen-selling intervention in September.
But selling by Japanese exporters is likely to keep the
dollar's advance in check. Japanese capital flow data showed
foreign investors have been scooping up Japanese shares in the
past three weeks.
The Australian dollar fell sharply as Reserve Bank of
Australia Governor Glenn Stevens dampened any remaining prospect
of an imminent interest rate hike, saying rates were just right
and that the bank might not move on policy for some time.
[]
The Aussie fell 0.9 percent to $0.9720 <AUD=D4>, dropping
below its 55-day moving average at $0.9777. It hit a four-week
low of $0.9705 in late Asian trade.
A critical support point is around $0.9650, a low hit in late
October, said Okasan Securities' Soma.
"There will likely be more position unwinding until early
December. But the Aussie will also enjoy persistent buying. At a
time when both the dollar and euro look fragile, money will flow
to commodity currencies like the Aussie," Soma said.
The dollar index <=USD> <.DXY>, which tracks the greenback's
performance against a basket of six major currencies, stood at
79.81, having failed to break resistance at 80.05 in the past two
sessions.
Still, a close above the 200-week moving average around 79.73
could add to its bullish signals.
(Additional reporting by Koh Gui Qing and Reuters FX analysts
Krishna Kumar in Sydney and Rick Lloyd in Singapore; Editing by
Joseph Radford)
