Euro gains fade after Japan plan to buy bonds

The European single currency spiked to $1.2990 in Tokyo morning trade from $1.2920 immediately after Finance Minister Yoshihiko Noda said Japan would buy bonds to be issued by the European Union.

But the unit fell back to $1.2953 by the afternoon, lower than $1.2955 in New York late Monday.

The euro traded at 107.51 yen in the afternoon, up from 107.10 in New York. The dollar was at 83.09 yen, from 82.67 yen.

Noda told reporters Japan would buy about 20 per cent of bonds to be issued by the European Financial Stability Facility with a guarantee by solvent eurozone members to raise part of the 67.5 billion euros of aid for Ireland.

Market players "went for euro buying out of surprise" over the Noda comment, said Credit Agricole forex director Yuji Saito.

But the rally was short-lived with investors realising Japan would use euros in its foreign reserves to buy the bonds, which indicates there will not be large fresh buying of the single currency, Saito said.

Japan's purchase plan "is anyway a euro-supportive factor," which props up the common currency if not boosting it, he added.

The euro has recently been battered due to worries over European sovereign debts.

The euro had fallen to $1.2830 in the past few days, its weakest level since mid-September.

The latest speculation is that Portugal may be the next European nation to need a bailout due to a mountain of sovereign debt, dealers said.

Investors are concerned that when Spain and Portugal issue more debt this week they will have to offer exceptionally high interest rates to attract lenders.

In Brussels, the European Commission insisted there was no discussion of a Portuguese bailout and rejected reports there was, but a diplomat there told AFP that "there is a lot of pressure on Portugal.

"Every European country wants Portugal to make more budget savings than planned and several countries want it to ask for external financial aid," the diplomat said on condition of anonymity.

Against Asian units, the dollar rose to 1.2974 Singapore dollars from 1.2967 on Monday, to 44.29 Philippine pesos from 44.28, to 30.63 Thai baht from 30.57 and to 9,090.00 Indonesian rupiah from 9,047.50.

It fell to 29.20 Taiwan dollars from 29.22.