RTRS:FOREX-Euro dips, market wary of Ecofin disappointment
* Euro's gains run out of steam
* Ecofin meeting in Poland with U.S. Treasury Secretary Geithner
* Players wary of taking big bets, scope for disappointment
By Nia Williams
LONDON, Sept 16 (Reuters) - The euro slipped on Friday after market players took profits from a rally sparked by coordinated action from major central banks to boost liquidity, and looked vulnerable to the downside if a meeting of EU finance ministers fails to agree further measures.
Investors were reluctant to take large positions ahead of the meeting in Poland on Friday which U.S. Treasury Secretary Timothy Geithner will also join. Discussions are expected to focus on leveraging the euro zone's bailout fund to make it more effective in fighting the debt crisis.
The euro was last down 0.4 percent at $1.3815 , off a one-week peak of $1.3937 hit on Thursday but well above a seven-month trough below $1.35 plumbed on Monday. The common currency has bounced some 1.8 percent so far this week.
Asian and European sovereign buying was cited at dips to the $1.3790 area, and traders reported downside stops building around $1.3770. Technical charts indicated the euro would find support around $1.3745, the 23.6 percent retracement of the fall from $1.4548 on Aug.29 to $1.3495 on Sept.12.
Analysts said after the central banks' liquidity measures on Thursday the market had built some hopes policymakers would announce further action to support the euro at the Ecofin meeting.
That left investors with plenty of room for disappointment.
"The market is not ready to make any big bets on this meeting. Investors will be very focused on anything that indicates disagreement between European politicians and finance ministers on what to do on this serious issue of euro zone debt," said Niels Christensen, FX strategist at Nordea.
"People are taking profit from the short move higher on the back of the dollar liquidity measure but ahead of the weekend the market is not ready to take euro/dollar very far."
After the coordinated move by the central bank, funding strains which had hit some euro zone banks hard and was impacting the euro appeared to be easing.
The three-month euro/dollar cross currency basis swap , or relative premium for swapping euro LIBOR for dollar LIBOR, narrowed to around 89 basis points after the announcement, from as wide as 115 basis points on Monday.
Wider spreads reflect elevated demand to borrow U.S. dollars in the currency forward market and often support the greenback's spot value against the euro.
In the options market euro/dollar month implied vols - measure of investor demand to protect against spot price volatility - edged higher to 14.5 percent from 14 percent on Thursday as spot fell. Vols could rise to recent highs if the euro dropped towards seven-month lows again.
U.S. EASING AHEAD
While investors were wary of euro downside there was also reluctance to take long positions in the U.S. dollar ahead of a Federal Reserve meeting next week, where policymakers may flag further easing measures to boost the economy.
Such a move, dubbed QE3, would weigh on the greenback and help riskier assets rally, although analysts said some market players thought "Operation Twist" was more likely.
In such a scenario the Fed would buy longer dated Treasury bonds and sell the shorter dated ones to keep rates at the longer end lower without expanding the balance sheet.
"Most people are anticipating Operation Twist where you rebalance your balance sheet rather than expand it but there is some nervousness about QE3," said Daragh Maher, FX strategist at Credit Agricole.
"Twist would be positive for the dollar because it is stimulative to growth. It would be seen as delivering stimulus without printing a few extra billion dollars."
The dollar index was last up 0.35 percent at 76.504 , while the greenback rose 0.4 percent versus the Swiss franc to 0.8729 francs , supported by the Swiss National bank reiterating its commitment to defend a floor of 1.20 in the euro versus the franc.
Against the yen, the dollar remained stuck at 76.69 yen . The threat of intervention from the Japanese authorities has helped keep the yen in a tight range and below its all-time high of 75.94 yen. (Editing by Toby Chopra)
