Euro rises against dollar as EU summit nears

NEW YORK: The euro rose against the dollar on Wednesday on cautious optimism that euro zone leaders may reach a deal to ease Greece's debt problems, though concerns remained about contagion to other countries in the region.

French ministers said on Wednesday that European leaders were less divided than the media was reporting and were likely to reach an accord at the summit that will ease Greece's debt woes.

That still left the euro vulnerable to signs the debt crisis could still spread to larger countries like Italy and Spain but for now, investors focused on the positive.

"There definitely is a pricing in of a deal" in the euro zone, said John McCarthy, director of currency trading at ING Capital Markets in New York.

Signs of progress on a US budget deal also prompted a rise in risk tolerance. A group of Democratic and Republican senators presented a new plan late on Tuesday that could revive stalled US debt talks and avert a default by the world's biggest economy.

The euro was last up 0.4 percent at $1.4214.

Euro zone sources said a summit of euro zone leaders would be delayed slightly to allow time for a deal to be reached on private sector involvement.

RISKS AHEAD

Analysts and traders do remain concerned that a second Greek bailout may only give temporary relief for the euro as wider debt problems on the euro zone's periphery would remain. "There is a feeling that there will be some kind of deal on Greece at the summit, but there are no guarantees this will ease concerns about the crisis spreading to Italy or Spain and people are unlikely to push euro/dollar too much higher," said Niels Christensen, currency strategist at Nordea in Copenhagen.

Commodity-linked currencies were supported by better appetite for risk, with the New Zealand dollar at $0.8552, up 0.6 percent against the US dollar and still near Tuesday's post-float high of $0.8573.

The Canadian dollar reached its highest since early May helped by Chinese oil producer CNOOC Ltd's saying it would buy Canada's Opti Canada Inc.

The dollar fell 0.3 percent against the yen to 78.88 yen, having backed off an intraday high near 79.31 yen.

Copyright Reuters, 2011