TOKYO: The euro extended gains in Asian trade on Wednesday, on short-covering ahead of the European Central Bank's first offer of three-year loans that many hope will help the region's banks lower their funding costs.
The euro built on Tuesday's gains, which followed an unexpectedly strong Spanish debt auction, though worries about Europe's debt crisis remain and will likely cap gains.
"There is some follow-through optimism about the euro from the previous session, which prompted short-covering, and this has continued into Asian trading," said Masafumi Yamamoto, chief forex strategist at Barclays Bank in Tokyo.
"But there is no resolution yet of Europe's debt situation, so the euro's short-covering gains will likely fade, with some investors selling into the rallies," he added.
The euro stood at $1.3120, after rising to an Asian session high of $1.31278 on heavy short-covering. The single currency gained 0.6 percent on Tuesday and rose as high as $1.3132, well off an 11-month low of $1.2945 hit last week on the EBS trading platform.
Key resistance lies at $1.3150, with initial support at $1.3050, ahead of a major barrier at $1.2980.
The ECB's first offer of three-year loans is Wednesday's key trading focus, with a Reuters poll predicting that 250 billion euro could be borrowed. Estimates ranged widely, from as little as 50 billion to as much as 450 billion euros.
Sources reported more than 10 Italian banks, including major lenders, were looking to apply for the loans by using state-guaranteed bonds as collateral, with talk they could tap as much as 70 billion euros, or around 15 percent of the total.
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