ently battered debt of heavily indebted Italy and Spain. The comments, by European Central Bank Executive Board member Benoit Coeure, that the bond-buying program remained an option were a balm for benchmark 10-year Italian and Spanish debt, whose yields fell after surging on Tuesday to multimonth highs, reflecting concern over the fiscal health of the Southern European nations. "The market action today tells you how sensitive investors are to yield levels and positive comments from the ECB, even though the central bank's comments were somewhat vague," said Steven Englander, head of G10 strategy at CitiFX, a division of Citigroup. "At the end of the day it seems clear that policymakers are very interested in keeping the asset market rally going and will do what is needed." Market players were encouraged by the narrowing Wednesday of Italian and Spanish and Italian 10-year yield spreads over the German equivalent, a gauge of investor risk perception. "Spreads in peripheral Europe did not widen on the (German) auction which was taken as a positive. Everyone was short the euro from yesterday, so we have just done the stops and are squeezing people out," a London-based trader said referring to Spanish and Italian bonds. European stocks moved higher, encouraging investors to buy riskier assets, including the euro. The common currency was last up 0.5 percent at $1.3140, having hit a high of $1.3156, with traders saying it was propped up by demand from hedge funds as well as sovereign names earlier reportedly buying on dips. Technical support is above the 100-day moving average at around $1.3136. That is stop loss buy orders should be triggered. Still, jitters over the safety of Italian debt did not evaporate Italy's one-year borrowing costs rose for the first time since November at a sale of short-term bills on Wednesday, mirroring fresh doubts about weaker euro zone countries and highlighting market nerves ahead of a major auction of three-year bonds on Thursday. Rising Spanish and Italian bond yields have exacerbated concerns about the fragility of southen euro zone economies in a market already hurt by last week's disappointing US job report and soft Chinese imports. "Euro/dollar has not managed to break below $1.30, but at the moment there is very little supportive news for the euro," said Audrey Childe-Freeman, global head of currency strategy at JP Morgan Private Bank. She said the euro was vulnerable to further falls against the dollar, yen and sterling. A move below support at the bottom of the daily Ichimoku cloud, a closely watched technical indicator around $1.3055 and below Monday's one-month low of $1.3033 could pave the way for a firm break below $1.30 for the euro, analysts said.

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