Euro claws higher

The euro gained against the dollar and yen on Thursday as investors clung to hopes that this weekend's European Union summit will move policy-makers toward a concrete plan to contain the deepening debt crisis. The single currency staged a late recovery, erasing earlier losses tied to conflicting news from Europe.
The contradictory headlines underscored the differences among policy-makers on how to help Greece and other heavily indebted eurozone countries. A rise in US blue chip stock prices also boosted appetite for the euro, despite news that adoption of crisis measures could be dragged out to next week, analysts and traders said.
"Risk is back on after the latest headlines. They seem to show there might be more of a definitive plan at a two-tier summit," said Tommy Molloy, chief dealer at FX Solutions at Saddle River, New Jersey. "The US equity market also put a little wind in the sail of the euro," Molloy said.
The euro last traded up 0.2 percent at $1.3731. It earlier hit a session low of $1.3655 on Reuters data, breaking below support around the 100-week moving average at $1.3671. The euro's late gain is seen fragile as doubts persist that EU leaders could agree on critical components of a comprehensive crisis solution, namely strengthening the European Financial Stability Facility (EFSF), the amount of recapitalisation for European banks and private bondholder losses on Greek debt.
"Investors are growing increasingly sceptical whether they can deliver a plan with teeth to tackle the problem. That uncertainty is keeping market action volatile," said Joe Manimbo, senior market analyst at Travelex Global Payments in Washington. Adding to the earlier bearish tone, Fitch Ratings said in a report that its outlook for Italy's largest banks is negative. The agency also kept a negative outlook on Belgium, warning it could downgrade the country if the eurozone debt crisis escalates.
Optimism that European leaders will deliver a comprehensive solution to debt problems by the EU summit had buoyed the euro to a one-month high on Monday, but the currency has pared gains on the disagreements between policy-makers on how to tackle the crisis.
Earlier Thursday, the euro touched a session high of $1.3842 after guidelines for the 440 billion euro EFSF obtained by Reuters showed the bailout fund will be able to buy bonds on the secondary market using its full remaining lending capacity.
The gains faded after a report by German newspaper Die Welt that the German government does not rule out postponing Sunday's summit in Brussels. The newspaper cited stalled negotiations on the possible leveraging of the EFSF. However, the euro's decline slowed after German Chancellor Angela Merkel and French President Nicolas Sarkozy issued a statement the summit will go on, although they also said no decisions will be adopted before a second meeting to be held by Wednesday.
As the weekend meeting in Brussels approaches, analysts said the euro was likely to stay in a range between its recent low around $1.3650 and a high around $1.3914. "The euro will be boxed in from here into the weekend," Travelex's Manimbo said. Against the Japanese yen, the euro was last up 0.2 percent at 105.88 yen. It was down 1 percent at 0.8939 Swiss francs. The dollar rose 0.05 percent to 76.85 yen, while against a basket of currencies, the dollar was down 0.2 percent at 76.936. On Wall Street, the Standard & Poor's 500 index closed up 0.46 percent, while the Dow Jones Industrial average ended 0.32 percent higher.