Euro tense as ECB tender fails to impress

Sydney: The euro was on the defensive against the dollar on Thursday, having shed all the week`s gains as investors doubted a massive 489 billion euro tender by the European Central Bank (ECB) would solve the EU debt crisis.

The euro was pinned at USD 1.3044 in Asia, having failed to sustain a rally to USD 1.3199 on Wednesday. It had briefly rallied on hopes the ECB`s first ever limit-free and ultra-cheap funding tender would tempt banks to buy Italian and Spanish debt and pull yields lower.

Analysts said there was little evidence so far banks were jumping into the "carry-trade" whereby a bank borrows 3-year debt from the ECB at 1 percent and invests in Spanish and/or Italian bonds at between 5 percent and 7 percent.

"With bank balance sheets under stress and the system still required to raise capital ratios under Basel III, the temptation will surely be for banks to sit on this additional liquidity, rather than recycle it back through the economy," wrote BNP Paribas in a daily note.

With no major EU event scheduled before year-end, trading volumes are set to thin out and keep the euro penned in a $1.2980/$1.3200 range, according to traders.

The euro, which has lost 2.5 percent this year, was eyeing major support around USD 1.3000, the December 14 low, ahead of the 2011`s through of USD 1.2860.

The single currency was off an all-time low on the Australian dollar and last stood at A$1.2912, having sunk as deep as A$1.2858 on Wednesday after stops below A$1.2900 were triggered.

The Australian dollar retreated on the dollar from a 10-day peak of USD 1.0220. It was last at USD 1.0096, down 1.3 percent for the year.

The dollar index inched up 0.1 percent to 80.003, well off last week`s 11-month peak, while it stayed dormant at 78.08 against the yen.

The UK will release GDP data later on Thursday with economists expecting a 0.5 percent growth in the third quarter.

Bureau Report

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