LONDON: The euro rose on Thursday as buying by sovereign investors helped it recover from losses made after Standard & Poor's cut Spain's credit rating to just above junk. Signals from the International Monetary Fund -- which has talked tough on the euro zone this week -- that some of the bloc's struggling governments should be given more time to deal with their problems was also a positive for the euro. But uncertainty over when Spain would seek a bailout and fresh concerns over Greece are likely to limit gains. The Spanish downgrade junk saw the euro fall to its lowest in more than a week at $1.2825 in Asian trade. It recovered to $1.2915, 0.3 percent higher on the day, rising past stop-loss orders above $1.2900 in the European session. Traders cited support at its 200-day moving average at $1.28233 with bids from Asian central banks reported at $1.2850. "For us the $1.2830 level is a very key level and above $1.3000 we will look to sell," said Stuart Frost, head of Absolute Returns and Currency at fund managers RWC Partners. "The market has taken the S&P downgrade in a negative way. But with implied vols at such low levels, we expect the euro/dollar to stay in a range in the near term." Euro/dollar implied volatilities are trading near their lowest in two years, with the one-month trading at around 8.4 vols. Volatilities, which reflect swings in financial asset prices, have been subdued for most of the year partly due to the aggressive flood of money from major central banks. Investors have been on tenterhooks since the European Central Bank laid out a plan to buy the debt of countries like Spain last month that requires governments to first request aid. Once Spain requests a bailout, the euro is likely to get a boost. But until that happens, the single currency is more likely to cede ground especially if pressure on peripheral bonds increases in the coming days. Italy sold 6 billion euros of bonds at auction, paying a higher price to sell three-year debt than a month ago but still finding solid demand. Earlier, IMF chief Christine Lagarde said heavily indebted European countries such as Greece and Spain should be given more time to cut their budget deficits. "It takes away some of the tail risk attached to the euro that even the IMF is ready to give them a bit more time," said Arne Lohmann Rasmussen, head of currency research at Danske Bank. "That's one of the reasons why we like to buy the euro on dips."

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