* Euro's rally extends, offers seen around $1.4050 * Dollar nears record low to yen; stops, barriers eyed * EU deal boosts Aussie, U.S. GDP data awaited By Neal Armstrong LONDON, Oct 27 (Reuters) - The euro hit a seven-week high against a struggling dollar on Thursday and riskier currencies rallied, as a deal to tackle the euro zone debt crisis provided relief to sceptical investors and prompted an unwinding of bearish positions. EU leaders and banks reached a deal on a 50 percent writedown for private bondholders on their Greek debt, and agreed to recapitalise European banks and scale up the euro zone's 440 billion euro ($600 billion) bailout fund. The euro rose nearly 1 percent on the day to $1.4038 on trading platform EBS, breaking through a wall of orders and charging past stop-loss points on the way. It was last trading around $1.4022 with large offers ahead of a $1.4050 barrier limiting further gains in the short term, traders said. "Positioning in the euro showed people had added to shorts in anticipation of a possible negative outcome from the EU summit," said Kiran Kowshik, currency strategist at BNP Paribas. "But what the EU did has largely ticked all the boxes, risks in the euro zone seem to have abated and that's allowed the euro to rally as the short positions are squeezed," he said. Key resistance for the euro was its 200-day moving average at $1.4097 which it has traded below since early September. While the euro zone's EFSF rescue fund will be leveraged four or five times to about 1 trillion euros, EU finance ministers are not expected to agree until November on the nitty-gritty elements of how the scaled-up facility will work. "The market was short risk and long dollars, so this has boosted the euro. But above $1.40, the air is a bit thin for and it is likely to struggle," said Paul Robson, currency strategist at RBS Global Banking. Against the yen, the euro was 0.2 percent higher at 106.39 yen , pushing back into the closely watched Ichimoku cloud. High-yielding currencies also rose, with the Australian dollar jumping over 2 percent to a seven-week high of $1.0644. DOLLAR/YEN NEAR RECORD LOWS While the summit package is seen averting a euro zone-driven financial market catastrophe in the near term, doubts remain whether it can improve the region's growth prospects. Recent data out of the euro zone has backed views that the region was flirting with recession. The European Central Bank meets next week and chances are high it will play its role by flagging interest rate cuts in the coming months. Morgan Stanley said in a note that although more near-term gains in the euro are expected following the deal, it was looking at establishing renewed bearish positions should the euro rebound into the $1.4060 area. Data later in the day is likely to show the U.S. economy accelerated in the third quarter driven by temporary factors, with growth likely to slow again. The dollar zeroed in on a record low against the yen after the Bank of Japan, as widely expected, decided to ease policy by expanding asset purchases by 5 trillion yen ($65.8 billion) to 20 trillion yen. The dollar was down 0.5 percent at 75.79 yen , pressuring the record low of 75.71 yen plumbed the day before. "What's driving weakness in dollar/yen is U.S. monetary policy," said Kowshik at BNP Paribas, who expected next week's Federal Reserve meeting to show a reiteration in the FOMC's willingness to keep U.S. rates around zero for an extended period. Traders also cited talk of an option barrier at 75.50 yen and a bigger one at 75.00 yen with chunky stop-loss dollar offers below the latter level. The move in the euro and other risk currencies saw the dollar index hit a new seven-week low of 75.560, trading below its 200-day moving average at 75.776.

Source