LONDON: The euro steadied against the dollar on Tuesday but further gains looked unlikely ahead of a debt sale in the Netherlands that will be watched for any sign of lacklustre demand after the country's governing coalition collapsed. Most analysts said the auction of up to 2.5 billion euros of two- and 25-year bonds should see adequate demand given its small size, but investors were increasingly nervous about signs of political upheaval in the euro zone's core. The Australian dollar hit a two-week low against the US dollar after soft inflation data fuelled expectations of interest rate cuts by the Reserve Bank of Australia. The euro had its worst day in a week on Monday, falling half a per cent as worries over the outcome of France's presidential election and bearish manufacturing data added to Dutch Prime Minister Mark Rutte's resignation. It edged 0.1 per cent higher on Tuesday to $1.3164, paring losses from Monday when disappointing euro zone PMI data pushed it to a low of $1.3103. The currency, however, remains squarely in a range roughly between $1.30 and $1.33 that it has traded in since early April. Strategists said they expected that to hold, as long as the Dutch auction was in line with market expectations. "If we do not see a disaster in the bond auction the euro will be driven by this sideways movement in a range-trading environment. But the euro zone is running out of safe haven assets," said Ulrich Leuchtmann, head of FX research at Commerzbank. Ratings agency Moody's said the collapse of the Dutch government after failing to agree on austerity cuts was credit-negative, although it maintained the country's triple-A rating. Fellow agency Fitch warned last week it was on verge of taking negative action on the rating. Some investors were also concerned about events in France where Socialist Francois Hollande - who has promised to renegotiate a European budget pact - won the first round of France's presidential poll on Sunday. Some analysts attributed the euro's recent resilience against the dollar to a fall in US Treasuries yields on weaker economic data, which has compressed the spread between the 10-year US government bonds and their German equivalent. The apparent inability of the currency to break either side of the range meant more consolidation was possible, they said, although given the return of tension around debt problems few were optimistic about the euro in the longer term. "We expect EURUSD to resume a weakening trend in coming weeks, with a break of $1.30 opening up a trading target of $1.25 within a 2-3 month horizon," said Jens Nordvig, global head of FX strategy at Nomura Securities. Traders cited talk of bids under $1.3110 and lower at $1.3070, while Middle Eastern investors were said to have offers at $1.3180.

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