(Reuters) - The euro fell on Thursday, hurt by doubts over whether European leaders will take aggressive steps at a summit this Sunday to ease the region's debt crisis.
The euro slid 0.4 percent to $1.3703, dropping toward the bottom of this week's range of roughly between $1.3650 to $1.3900. The single currency fell 0.5 percent versus the yen to 105.16 yen.
Signs that European policymakers were struggling to reach consensus on measures to contain the debt crisis weighed on the euro, and its drop gained steam as falls in commodities and Asian shares dragged cross/yen pairs lower.
The Australian dollar also took a hit, falling 0.6 percent to $1.0164
French President Nicolas Sarkozy said on Wednesday that plans to tackle the euro zone debt crisis have stalled with Paris and Berlin at odds over how to increase the firepower of the region's bailout fund.
Still, the euro's downside was considered likely to be limited in the near-term, with some market players giving Europe the benefit of doubt in the lead-up to this weekend's European Union summit, and a G20 summit in early November.
"As long as hopes for a soft-landing (of the crisis) persist, the euro's downside will probably stay firm, at least for this week and next week," said Makoto Noji, senior bond and currency strategist for SMBC Nikko Securities in Tokyo.
"I don't think we are in a situation where selling will snowball and push the euro down immediately to $1.33 or $1.32," Noji said, adding that the unwinding of short euro positions taken over the past few months may lend the currency support.
The bottom of the euro's range for the next couple of weeks will probably be around $1.35, Noji said.
On the upside, the euro will likely face stiff resistance at the 200-day moving average, Noji said, adding that single currency may have a hard time breaking above that line in the next few months. The 200-day moving average now lies near $1.4085.
Closer to current levels, the euro faces resistance at the 55-day moving average near $1.3925. Possible support for the euro lies at this week's low near $1.3653.
A near-term focus ahead of the EU summit are debt auctions in France and Spain later on Thursday, with traders keeping their eyes on the yield spread between French and German bonds in particular, said a trader for a Japanese bank.
Earlier this week, Moody's warned it may slap a negative outlook on France's Aaa credit rating in the next three months if the costs for helping to bail out banks and other euro zone members stretch its budget too thin.
DANGER OF DISAPPOINTMENT
Risky assets and the euro have bounced in the past couple of weeks as investors pared bearish bets after the leaders of Germany and France pledged to unveil a comprehensive package by the end of the month to resolve the euro zone's debt crisis, including an agreement on how to recapitalize banks.
But market players say such measures by themselves are unlikely to provide a fundamental solution, given uncertainties about whether euro zone countries will be able to make progress on fiscal consolidation, especially at a time when the region's economy is showing signs of weakness.
Some market players reckon that the euro could take a fall after the weekend's EU summit.
"We are doubtful that European policymakers will be able to produce a bold and comprehensive solution this weekend but it seems that some in the market are buying into a positive European story right now," said Christopher Gothard, head of FX for Brown Brothers Harriman in Hong Kong. "So the danger is of disappointment after the weekend and a euro coming under pressure.
Gothard said Brown Brothers Harriman's forecast was for the euro to drop to $1.29 by year-end.
"We think it will still hold up broadly until the G20 summit, but remain skeptical that given past behavior, there will be a compelling solution even then," he said.
The yen, which is regarded as a safe haven in times of market stress, rose broadly as commodities and equities came under pressure, and the dollar dipped 0.1 percent against the yen to 76.75 yen.
The yen showed subdued reaction to news that Japan's government and the Bank of Japan will launch a task force to help deal with the yen's recent strength.
The government said in a draft that it would not rule out any measures on foreign exchange and that it would take firm steps as needed, signaling its readiness to step into the market to curb excessive currency moves.
(Additional reporting by Kaori Kaneko in Tokyo; Editing by Kim Coghill)
