Euro steady after Greece bailout deal

TOKYO, July 22, 2011 (AFP) - The euro held on to the bulk of overnight gains after eurozone leaders reached a deal to rescue debt-ridden Greece, as attention turned to the dollar amid US political wrangling over debt.

The euro traded at $1.4390 by 0500 GMT in Tokyo after surging to $1.4417 in New York late Thursday from $1.4212.

The single currency was almost flat at 113.14 yen against 113.11 yen.

The dollar inched up to 78.58 yen from 78.43 yen.

European leaders agreed at an emergency meeting in Brussels Thursday on a 109 billion euro ($157 billion) bailout for Greece.

Lending terms to Ireland and Portugal would also be eased and the 440 billion euro European financial stabilisation fund (EFSF) would be allowed to buy bonds in the secondary market to fight contagion risks.

Private creditors who hold Greek debt that matures in the coming years will "voluntarily" turn in their bonds and accept new ones that mature far in the future.

The private sector's "contribution" would roughly amount to a further 50 billion euros including a bond buy-back programme.

The deal "went beyond market expectations," BNP Paribas said in a research note, calling the agreement "a major step towards stabilizing the markets and a resolution of the debt crisis."

Fears that a fresh financial crisis could tear through world economies have pressured markets in recent weeks as the likes of Italy and Spain have seen their borrowing costs soar over debt contagion concerns.

The rescue's "key development" is that the European Central Bank can still accept Greek bonds as collateral for refinancing operations even if ratings agencies deem Greece to be in "selective default," economist Daisuke Karakama at Mizuho Corporate Bank told Dow Jones Newswires.

"The agreement helped recede the market's concern for now," said Gen Kawabe, senior dealer at Chuo Mitsui Trust and Banking. "But the euro's topside was capped by commercial demand-backed selling in Tokyo trading hours."

The new bailout Greece comes after the European Union and IMF's 110-billion-euro bailout last year proved insufficient, with the financial markets tightening the screws on Athens.

Attention returned to the greenback amid uncertainty over how Washington would resolve the issue of raising the nation's debt limit before an August 2 deadline in order to avoid default.

Amid discord between Democrats and Republicans, President Barack Obama earlier this week backed a plan brokered by the bipartisan group of six senators.

But there is no prospect so far for the cross-party plan to pass through both houses of Congress.

"The market is tilted towards dollar selling on lingering caution as the deadline (for raising the debt ceiling) nears," Kawabe said.

However, the yen softened as Japanese authorities attempted to talk down the unit's strength.

Japanese Finance Minister Yoshihiko Noda again Friday called the yen moves "one sided," Dow Jones reported. But analysts said the chances of Japan's yen-selling intervention were still low with share prices holding firm.

The dollar weakened against other Asian currencies, falling to Sg$1.2094 from Sg$1.2122 on Thursday and to 1,050.35 South Korean won from 1,055.20.

The unit also retreated to 42.41 Philippine pesos from 42.62, to 8,526.75 Indonesian rupiah from 8,535.75 and to 29.83 Thai baht from 29.88. It was flat at Tw$28.85.

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