WSJ:WORLD FOREX: Euro Extends Gains Vs Dollar, Yen; Italian Auction Eyed
-- Euro extend gains after Thursday's bond auctions in Spain, Italy
-- Successful debt sales stoke expectations for longer-term Italian bond auction later in day
-- Euro zone's structural problems remain to be solved
-- Greek debt talks eyed
By Kosaku Narioka
Of DOW JONES NEWSWIRES
TOKYO -(Dow Jones)- The euro extended gains against the dollar and the yen on Friday in Asia as surprisingly strong demand at debt auctions in Spain and Italy on Thursday boosted expectations for a successful longer-term Italian bond auction later in the global day.
Thursday's bond sales were considered a mood setter for debt offerings in the euro zone, in particular future auctions in Italy and Spain, the 17-nation currency zone's third and fourth-largest economies.
"Expectations have grown that today's Italian bond auction will go quite well," said Kosuke Hanao, head of FX at HSBC in Tokyo. "One of the concerns has eased. Now, players are watching whether the fiscal pact agreed (by European leaders) in December can be nailed down" in coming weeks.
Banks that have borrowed from the European Central Bank's long-term refinancing operation in December, initially parked much of that money at the ECB's overnight deposit window, but a drop in the total, announced Thursday, suggests they are investing the funds, particularly in shorter-dated debt, analysts said.
The euro may continue recovering versus the dollar and the yen as many market participants take profits on the massive positions they have built over the previous few weeks as the common currency trended lower, some Tokyo dealers said.
On the other hand, the dim euro-zone economic outlook, with underlying structural problems yet to be resolved, means that such position covering may not last long, others said.
"The euro remains on a downward trend," said Osao Iizuka, head of FX trading at Sumitomo Trust & Banking. "The situation hasn't changed."
In the near-term, participants will be keeping an eye on Italy's bond auction later in the day, as well as Greece's debt talks with officials from the Institute of International Finance.
The euro was at $1.2845 as of 0550 GMT from $1.2814 late Thursday in New York and was at Y98.56 from Y98.49, according to EBS. The dollar was unchanged at Y76.75. The U.K. pound was at $1.5351 from $1.5336. The dollar was at CHF0.9435 from CHF0.9443.
The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 80.713 from 80.845.
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