FOREX-Euro gains on Greece plan






The euro lifted off a 10-month low against the dollar on Friday after euro zone leaders agreed on a safety net for Greece, though uncertainties remained over how Athens's debt burden would be managed in practice.

Euro zone leaders agreed a package under which Greece would receive both bilateral loans from euro zone partners and International Monetary Fund funding if it faced severe difficulties. [ID:nLDE62N2R1]

But the plan did not alleviate longer-term worries about Greece and other fiscally vulnerable economies, such as Portugal and Spain, limiting euro gains. It only offers Athens funding as a last resort and only with unanimous euro zone approval.

"This buys the euro a bit of time, but nothing fundamental has changed and Greece still has to roll over its debt," CMC Markets analyst Michael Hewson said.

"The fact that the IMF has had to be called in to make it more acceptable to Germany suggests the euro has a long way to go before it becomes a reserve currency."

Athens is saddled with borrowing costs more than double those of Germany and must borrow some 16 billion euros ($21.3 billion) between April 20 and May 23 to refinance maturing debt.

At 1127 GMT, the euro EUR= was up 0.9 percent against the dollar at $1.3393, recovering after hitting its weakest level since early May at $1.3267 on trading platform EBS.

Concerns about Greece's fiscal health have caused the single currency to lose around 12 percent of its value versus the dollar since early December, when it was trading above $1.51.

Hewson said the previous support around $1.3480 -- the 61.8 percent retracement of last year's move from the March lows below $1.30 to the December highs -- had become a significant resistance level.

A weekly close below here would "reinforce a downside trend in euro/dollar, potentially taking it down towards $1.3000".

DOUBTS ON GREECE DEAL

Traders said investors were encouraged after European Central Bank President Jean-Claude Trichet said the aid mechanism was "workable" although it was unlikely ever to be activated. [ID:nLDE62O2MJ]

Some analysts said the IMF's involvement could speed up Greece's fiscal reconstruction, although others said the deal's extremely strict conditions could harm the Greek economy.

"Going forward the market will be focusing more on whether Greece will be able to deliver the austerity measures it has promised," said Johan Javeus, currency strategist at SEB in Stockholm..

Against the yen, the euro rose EURJPY=R around 0.8 percent to touch a one-week high of 124.02 yen, while it gained 0.6 percent against sterling EURGBP=D4 to 90.12 pence.

The dollar index .DXY, a measure of its performance against six other major currencies, fell 0.5 percent to 81.692, still close to a 10-month high of 82.877 after gaining sharply in the past few days on higher U.S. yields.

The dollar struck its highest level since early January against the yen on Thursday at 92.96 yen JPY=, boosted by a rising differential between U.S. and Japanese yields, but trickled back on Friday to trade down 0.2 percent at 92.54.