The euro rose earlier in the session after Greece's sale of 10-year bonds drew solid demand, but succumbed to pressure as selling resumed after the ECB signaled it is unwinding more of the extraordinary help it gave the euro zone economy during the global crisis.

"The main takeaway is that Mr. Trichet's comments so far are consistent with the view that the (European Central Bank) will keep rates at record lows perhaps longer than its U.S counterpart," said Joe Manimbo, a currency trader at Travelex Global Business Payments in Washington.

"That's putting some downward pressure on the euro," he added.

In morning trading in New York, the euro was 0.2 percent lower at $1.3669 EUR=, after trading as high as $1.3712, according to Reuters data.
 

The euro hit a session high of 1.4653 francs EURCHF=, according to Reuters data. It was last changing hands at 1.4639, flat on the day and above its global session low of 1.4624 francs.

The data pushed stocks and commodities .CRB lower, keeping higher-yielding currencies such as the Australian AUD=D4 and New Zealand dollars NZD=D4 under pressure. The rush to safety benefitted U.S. Treasuries, with 10-year yields down a steep 10 basis points the previous day.

"Risk aversion moves are providing support for the yen and the dollar," said Tsutomu Soma, senior manager of the foreign securities department at Okasan Securities.

"There are few options but Treasuries for investors to buy as data has shown the U.S. economy is not as strong as previously thought," he said.

The fall in U.S. yields kept the dollar subdued against the yen JPY=, at 90.20 yen, having shed nearly 1 percent on Tuesday. The yen gains when risk aversion rises as investors unwind trades financed with the low-yielding Japanese currency.

But the U.S. dollar held onto sizable gains against other major currencies with the dollar index .DXY =USD at 80.75, not far from its 8-month peak of 81.34 hit last week.

Currency markets took the Fed's discount rate decision last week as a signal the U.S. central bank was coming closer to tightening its benchmark rate, despite assurances from Fed policymakers to the contrary.

But a benign U.S. inflation reading on Friday, with consumer prices rising less than forecast in January [ID:nN19117929], caused markets to pull back those rate expectations, in turn provoking a cautious return to risk appetite.

"There is some recovery in risk appetite, with markets believing the CPI data will help to anchor the U.S. rate curve, even though the Fed hiked the discount rate last week," said Ray Farris, chief currency strategist at Credit Suisse.

At 1049 GMT, the dollar was trading down 0.1 percent against a basket of currencies .DXY, with the index at 80.553 after hitting an eight-month high on Friday of 81.342 in the wake of the Fed discount rate hike, which surprised some in the market.

The greenback was flat versus the euro EUR=, which traded at $1.3605 and gained support from reports that Germany had prepared plans under which countries using the single currency would provide aid worth between 20 billion and 25 billion euros for debt-laden Greece.

The euro fell against the dollar, nearing a nine-month low hit earlier this week, while sterling came under selling pressure after data revealed an unexpectedly sharp deterioration in UK public finances in January.

Analysts said there were concerns that if countries such as Greece implemented the harsh fiscal measures needed to cut their debt this would weigh on euro zone growth and the European Central Bank would be slower in tightening monetary policy.

That view pushed down implied euro zone interest rates on Thursday.

"ECB tightening risks being delayed, and yield differentials are playing in favour of a lower euro/dollar," said Tom Levinson, currency strategist at ING.

The dollar hit a session high of 90.18 yen JPY= and it was last up 0.2 percent at 90.13 yen.

Worries over the indebtedness of Greece combined with renewed concerns over Dubai's debt to fan aversion to risk, keeping the U.S. dollar supported and weighing on the euro as the market sought perceived safer assets.

There were few expectations the meetings on Monday and Tuesday would yield specific measures to bail out Greece after European Union leaders pledged last week to support it. Most analysts expect uncertainty to keep the euro weak.

"The market is already positioned for more falls in euro/dollar, it just needs the impetus to continue that," said Niels Christensen, currency strategist at Nordea in Copenhagen.

The latest data showed currency speculators raised bets on the euro falling against the dollar to a record high in the week to Feb. 9, while bets on the dollar rising hit their highest since September 2008.

By 1218 GMT, the euro edged up 0.1 percent to $1.3622 EUR=, after falling to the day's low of $1.3578, according to electronic trading platform EBS. It hovered close to a 9-month low of $1.3532 on Friday.

The speculation emerged after news that European Central Bank President Jean-Claude Trichet was leaving a meeting of central bankers in Sydney early to attend a European Council meeting on Feb. 11.

"We are seeing a squeeze of some short euro positions which were established at low levels as market speculation of a Greek bailout is seen as positive in the near-term," said Antje Praefcke, currency strategist at Commerzbank in Frankfurt.

At 0850 GMT the euro EUR= had risen 0.5 percent on the day to trade at $1.3725, just off the day's high of $1.3744.

However, gains were capped as investors remained wary of pushing the euro too high as concerns about the fiscal positions of euro zone states including Greece, Portugal and Spain hampered sentiment towards the single European currency.
 

Analysts said sentiment towards the single currency remained broadly negative, not helped by Greek unions pledging to fight austerity measures with another strike this week, prompting an increase in the cost of insuring Greece's sovereign debt.

Investors were disappointed the weekend Group of Seven meeting did not lead to concrete action to tackle the sovereign debt problems of countries such as Greece, Portugal and Spain.

European ministers told their counterparts at the meeting they would ensure Greece sticks to its budget-cutting plan, but analysts said more was needed to restore confidence the problems would not upset the global economic recovery.

"As long as EMU fears still loom and there is no strong signal from EU authorities that they will do something to tackle the situation in Greece, Spain and Portugal then euro downside potential will remain," said Roberto Mialich, currency strategist at Unicredit in Milan.

U.S. Commodity Futures Trading Commission data showed investors increased their bets on further dollar gains in the latest week. Dollar net long positions were at their highest in 11 months while euro short positions jumped close to highs seen after Lehman Brothers collapsed in late 2008.
 

Mounting worries that Portugal will be the next country in the euro zone to come under pressure after Greece lifted the greenback against the euro. Spain fiscal deficit also was a concern.

The euro slipped below the key 1.3900 level to a session low of $1.3891 EUR=, and the cost of insuring Portuguese government bonds against default rose a record 196 basis points, according to CMA DataVision.

MSCI's all-country world index .MIWDO0000PUS fell 0.4 percent.

U.S. stocks mostly fell after Pfizer Inc (PFE.N) led a broad decline in health-related sectors after the world's biggest drugmaker reported quarterly earnings that missed estimates and forecast profits below expectations.

The U.S. economy is expected to have grown at an annualised 4.6 percent in the fourth quarter, double the rate in the third quarter when the economy resumed expansion after four consecutive quarters of decline.

"The market has stabilised before we go into the U.S. GDP number later today and I think that's going to drive the next leg of the price action," said HSBC director of currency strategy Paul Mackel.

"Uncertainty over this number is huge and that is one of the reasons why we're see profit taking."

Investors this week had heavily sold Greek and other euro zone peripheral bonds on concerns whether they could grapple with their huge fiscal deficits.

The Financial Times quoted high-level EU officials as saying Greece would in the last resort receive emergency support from other euro zone governments and the European Commission.

"A more positive environment is growing in that it looks like European authorities are putting together a package for Greece and that appears a likely option in coming months," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.

The dollar gained support after Kansas City Fed President Thomas Hoenig dissented from the Fed's pledge to keep rates low "for an extended period", bolstering the market's view that rates may start to rise later in the year.

Analysts warned the euro was heading for more losses as concerns rise about the grim fiscal conditions in the euro zone.

"Sentiment definitely remains negative for the euro because of the Greece problem," said Lutz Karpowitz, currency strategist at Commerzbank in Frankfurt.

"I thought the Greece story would eventually die down, but that doesn't seem to be the case, and there are more countries in the pipeline (which are facing debt problems)."

Greek government bond yields have shot up on concerns over how Athens will pay its debts. As a result, the 10-year Greek/Bund spread blew out on Thursday to its widest since Greece joined the euro in 2001.

Analysts said markets were aware other countries' fiscal positions may also be vulnerable.

Ratings agency S&P said concerns over Portugal's public finances had not abated after its budget this week.

European shares fell some 1.0 percent in early trade following losses in Asia and on Wall Street overnight.

"Concerns over China and Greece are still in the background. The uncertainty all this suggests is likely to keep risk on the back foot," said Gavin Friend, currency strategist at National Australia Bank.

"I think equities have further to go on the downside and the period of pessimism can continue."

By 0841 GMT, the euro was down 0.5 percent at 125.50 yen EURJPY=R after hitting a 9-month low of 125.25 yen.

Market players said the next downside target could be levels near its April 2009 low of 124.38.

"Euro/yen and Aussie/yen in particular are vulnerable to a more disorderly decline should we see further weakness, given Japanese margin accounts on the Tokyo Financial Exchange were holding near record longs on these two crosses as of Friday," analysts at RBC Capital Markets said in a note.

The move sparked selling in positions funded by the low-yielding yen. The dollar also rose against most currencies other than the yen as investors turned more risk averse.

Higher-yielding and commodity-linked currencies tend to fall on any hint China may be putting the brakes on its economy.

The euro pared losses, however, after a German survey showed a bigger-than-expected rise, with the Ifo business climate at 95.8 in January, up from 94.7 in December.

The Japanese currency also came off its highs after Standard and Poor's cut its outlook for Japanese debt, citing reduced wriggle room on fiscal policy and disappointment with the new government's budget consolidation plans.

The euro tumbled to a nine-month low at 126.55 yen EURJPY=R after breaching a long-held chart support at 127.00 yen, taking the dollar down with it to its weakest in a month.

High-yielding and commodity-linked currencies such as the Australian and New Zealand dollars also fell against the yen, partly on the U.S. plan and still undermined by worries that China may further tighten monetary policy in the coming weeks.

"The major trend in the market is to reduce risk positions," a senior trader at a European bank in Tokyo said.

The euro, which has been sold heavily this week on concerns about Greece's fiscal problems, later found buyers at its lows, with traders reporting leveraged accounts and Japanese life insurer buying euro/dollar and euro/yen respectively.

It fell 0.1 percent on the day to 127.26 yen EURJPY=R and pulled up from a six-month low of $1.4029 EUR= set on trading platform EBS on Thursday to gain 0.4 percent to $1.4135.

The senior trader said 127.00 was a critical level for the euro as a close below there this week would signal further falls. Some said the next target was April's 124.38 yen low.

U.S. President Barack Obama's proposals included preventing major banks from owning, sponsoring or investing in hedge funds for their own profit.

Ongoing weakness in the single European currency prompted a broad rise in the dollar, which extended this week's winning streak and hit a 4-1/2-month high against a currency basket.

The Australian dollar slipped as robust Chinese growth and higher inflation data raised speculation of further monetary tightening, which could hurt commodity-linked currencies.

Analysts said the U.S. currency benefited from a slide in global share prices and the dollar index's vault above its 200-day moving average on Thursday.

The euro dropped under its 200-day moving average against the dollar on Wednesday for the first time since May 2009. Analysts said this suggested it may be prone to more weakness. "We see positive momentum in the dollar continuing due to risk appetite and problems related to the euro zone," said Kasper Kirkegaard, currency strategist at Danske in Copenhagen.

"That momentum has increased after technical levels were breached, which is supporting the dollar."

The euro fell 0.5 percent on the day to $1.4028 according to Reuters data, its lowest since late July. By 1126 GMT, it was at $1.4040. Option barriers were seen at $1.4000, traders said.

The dollar index .DXY rose to 78.814, its highest since early September, and pushed above its 200-day moving average at 78.515 for the first time since May last year.

German analyst and investor sentiment fell more than expected in January to its lowest level since July, with the ZEW economic sentiment index dropping to 47.2 in January from 50.4 in December, below forecasts for a fall to 49.5.

That pushed the single currency to its weakest in more than a week against the dollar.

The euro's biggest falls, though, were against sterling, which was boosted by a surge in UK inflation and as U.S.-based Kraft Foods Inc (KFT.N) agreed a recommended deal to buy Cadbury (CBRY.L) for around 11.9 billion pounds ($19.6 billion), creating the world's largest confectioner.

"The market has reacted to the ZEW data and the euro has moved lower, but we are still in a very technically driven market, with price action driven by day-to-day news," said Peter Wuyts, currency strategist at KBC in Brussels.
 

As Greece's debt burden highlighted the fragility of some euro zone members, investors awaited comments from a meeting of the 16-country bloc's finance ministers on Monday.

The ministers are due to discuss the unreliability of Greek statistics, and are said to be running out of patience with Athens as it has repeatedly misled its euro zone peers about the size of its budget deficit.

"The Greek developments are definitely casting a shadow on the euro," said Rob Minikin, currency strategist at Standard Chartered in London.

"It underlines how a strong euro could compound problems in the region, and reinvigorates the argument for a weaker euro," he said, adding he expected the euro to weaken broadly in the near term.

On the other hand, sterling gained on firmer UK housing data and as speculative players chased it higher on reports that French utility GDF Suez (GSZ.PA) was eyeing a tie-up with Britain's International Power (IPR.L).

Overall, trade was subdued as U.S. markets were closed for Martin Luther King Day.

By 1434 GMT, the euro was flat on the day at $1.4380 EUR=.

Against the pound, the euro fell 0.6 percent to 87.82 pence EURGBP=D4, its lowest since mid-September. Sterling also hit a one-month high against the dollar at $1.6380 GBP=D4.

As Greece's debt burden highlighted the fragility of some euro zone members, investors awaited comments from a meeting of the 16-country bloc's finance ministers on Monday. [ID:nLDE60E1AB]

The ministers are due to discuss the unreliability of Greek statistics, and are said to be running out of patience with Athens as it has repeatedly misled its euro zone peers about the size of its budget deficit.

"The Greek developments are definately casting a shadow on the euro," said Rob Minikin, currency strategist at Standard Chartered in London.

"It underlines how a strong euro could compound problems in the region, and reinvigorates the argument for a weaker euro," he said, adding he expected the euro to weaken broadly in the near term.

On the other hand, sterling gained on firmer UK housing data and as speculative players chased it higher on reports that French utility GDF Suez (GSZ.PA) was eyeing a tie-up with Britain's International Power