Euro rises for 3rd day, investors look to sell rallies

NEW YORK: The euro rose for a third straight day against the dollar on Tuesday, bolstered by speculation policymakers were planning to boost the region's bailout fund, although gains could prove short-lived.

European officials on Tuesday poured cold water on the idea of expanding the bailout fund, frustrating investors eager for a lasting solution to the euro zone's debt drama.

German Finance Minister Wolfgang Schaeuble, for instance, said on Tuesday that raising the euro zone bailout fund is a "silly idea," and would mean some of the economies within the region could lose their AAA rating.

Spain's economy minister Elena Salgado also downplayed the rescue fund speculaton, saying plans to extend the region's EFSF bailout fund to 2 trillion euros were not on the table. She also tempered expectations of a radical and swift action by European policymakers to contain the worsening debt crisis.

"The euro is benefiting from optimism that European officials are close to getting a handle on the euro zone debt crisis. This has also led to broad gains in stocks," said Joe Manimbo, senior market analyst, at Travelex Global Payments in Washington.

"But it remains vulnerable to declines and investors are still cautious."

In early New York trading, the euro rose 0.7 percent on the day against the dollar to $1.36405, way above an eight-month low of $1.33600 hit on Monday.

Oscillators such as the relative strength index suggested the euro may be near oversold territory, while traders said investors were still looking to sell the euro on any rally.

"A lot of investors are looking to reset new short euro positions around $1.36," said Niels Christensen, currency strategist at Nordea in Copenhagen.

The strategy to sell into a bounce in the euro was widespread as doubts persisted over policymakers' ability to craft a plan quickly to deal with the escalating crisis.

Higher-risk growth-linked currencies also rebounded on Tuesday after a recent sharp sell-off, helped by firmer equities. The Aussie dollar was up 1.0 percent against the US dollar at US$0.9950 and the Kiwi dollar gained 1.5 percent to at US$0.7920.

The US dollar traded 0.2 percent highs at 76.530 yen, hovering close to record lows around 75.94 yen and keeping alive concerns that Japan could intervene again to stem its currency's gains. The yen has strengthened nearly 6 percent so far this year.

Copyright Reuters, 2011