(Reuters) - The euro clung to its gains of the past three sessions in Asia on Friday, helped by short-covering after the European Central Bank took steps to keep banks afloat and on hopes of more policy measures to prop up banks.
Still, entrenched skepticism over the euro zone's ability to pull together a timely response to the debt and banking crisis kept many players ready to sell the euro into rallies.
Japanese exporters have been steadily selling the euro this week, including on Friday, keeping the currency in check, while commodity currencies gained slightly on the back of easing fears over the euro zone's debt malaise.
"The euro still seems to be in a downward sloping tunnel. Inside this tunnel, people are trying to grope their way along and occasionally they may go up but the tunnel itself is still sloping down," said Kimihiko Tomita, manager of forex at State Street.
The common currency stood at $1.3425, down 0.1 percent from late U.S. levels, staying well above a nine-month low of $1.3145 hit on Tuesday.
The currency gained 0.6 percent on Thursday after the ECB announced new 12- and 13-month lending operations as well as a plan to buy 40 billion euros of covered bonds, which will likely tide banks over through all of 2012.
Though the ECB stopped short of cutting rates as some had speculated, the measures were enough to boost battered share prices and propel copper to its biggest one-day gain in 20 months.
For now, the euro looked set to retest $1.3448, the 38.2 retracement of its sharp fall since mid-September. A break above that would target its 21-day moving average at $1.3575.
European Commission President Jose Manuel Barroso said on Thursday the EU's executive arm would present a plan for member states to coordinate a recapitalization of their banks.
But many players doubt that policy actions on banks will come quickly, given the euro zone's history of trouble in gaining a consensus among member countries, and they think the short-covering rally in the euro could run out of gas soon.
Greg Gibbs, strategist at RBS in Sydney, said markets have probably seen the best of the risk rally as they start to think about what's coming next.
"There are still plenty of problems that face the European financial system... The risk rally will probably run out of steam in the next week."
Taking a contrarian view, Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp, said the euro could extend gains to around $1.37 next week on hopes that European policy makers will come up with more anti-crisis measures by the G20 finance ministers' meeting on October 14-15.
Investors are now focusing on Friday's U.S. non-farm payrolls report for September, which is expected to show 60,000 new jobs created and the unemployment rate unchanged at 9.1 percent.
Still, given concern over the health of the European and global financial system, the data may have little impact on market sentiment if job growth comes in somewhere between zero and 100,000, a Japanese bank trader said.
Sterling stood at $1.5457, up 0.1 percent on the day. It dived to its lowest level in 14 months against the dollar at $1.5270 after the Bank of England announced more quantitative easing.
The Australian dollar rose 0.4 percent to $0.9771 on the back of an ease in fears about the debt crisis.
The dollar moved little against the yen at 76.66 yen but the euro was softer versus the yen at 102.90 yen, down 0.1 percent, on Japanese exporter selling.
The Bank of Japan kept policy on hold at its two-day policy meeting that ended on Friday.
(Additional reporting by Cecile Lefort in Sydney and Antoni Slodkowski in Tokyo; Editing by Edwina Gibbs)
