LONDON: The euro edged higher on Monday as a local election victory for Spanish Prime Minister Mariano Rajoy in his home region was seen as clearing an obstacle to Madrid seeking international aid.
But slow progress towards a banking union across the 17-member euro area and towards agreement on a common budget for the whole European Union limited the gains.
"Now (Rajoy) has the support of his region, perhaps he'll feel confident to actually press forward and ask for a bailout," said Fiona Cincotta, City Index market strategist.
Cincotta said markets had been patient in the run up to the weekend vote in Galicia, which had been seen as a referendum on the Spanish government's handling of the euro zone crisis, and will want to see action on a bailout request soon.
Spanish 10-year bond yields crept up 5 basis points in the wake of the election result to be at 5.43 percent, having fallen around half a point last week after the country retained its investment grade rating.
German 10-year bond yields, which would be expected to fall if tensions in the euro area had eased, were little changed at 1.61 percent.
Financial markets are still waiting for a bailout request from Spain to trigger the European Central Bank's new bond- buying programme, which many believe would draw a line under any threat of default from the euro zone's fourth-largest economy.
The euro was up 0.4 percent against the dollar at $1.3070 from a low of $1.3013 hit on Friday, and touched fresh multi-month highs against the yen and the British pound.
A comment from ECB executive board member Joerg Asmussen reiterating the central bank's commitment do everything in its power to protect the euro from a breakup added support to the currency.
But the range of problems still facing the euro zone was keeping the gains in check.
European Union leaders face at least two months of tough bargaining on money, power and the future governance of the monetary area before they can convince investors that the threat to the single currency has faded.
