The euro struck a one-week high against the dollar on Thursday, helped by a a report that China is interested in buying EU bailout bonds for Portugal, though concerns over eurozone debt were expected to limit gains. Traders said the euro's failure to break below $1.4000 this week forced some investors who were betting on this eventuality to close short euro positions.
However, reported offers above $1.4200 were expected to keep it trapped well below Friday's high around $1.4345. Euro buying was encouraged by a Financial Times article quoting the chief executive of the European Financial Stability Facility as saying China was interested in buying bonds for the Portuguese bailout, to be issued in mid-June.
Traders reported good demand from Middle East and Asian accounts to buy the euro on dips, while analysts said the euro was likely to pick up support from expectations the European Central Bank will raise interest rates further. The euro was up 0.65 percent at $1.4177 though offers around $1.4200 kept it below that level, with the high at $1.4197. Earlier, traders reported stop-loss euro purchases at $1.4120 and $1.4150.
The single currency has solid technical support just below $1.4000, including the 100-day moving average, now around $1.3996, and another support seen near $1.3968, a two-month low struck earlier this week. If the euro does make a sustained break below $1.4000 then $1.3770, a 38.2 percent Fibonacci retracement of the euro's rise from June 2010 to May 2011, could be a key technical support.
The New Zealand dollar outperformed, jumping 1.4 percent to $0.8087 and coming close to the early May high of $0.8122, its highest since March 2008. Traders cited New Zealand website Interest.co.nz, which reported China was potentially interested in buying New Zealand assets.
The Australian dollar rose 0.5 percent to $1.0582, well above a low of $1.0440 hit on Wednesday and helped by better risk sentiment and data showing a pick-up in Australian capital spending. The safe-haven Swiss franc backed off from record high levels against the euro as risk-averse investors' follow-through moves were limited, traders said. The euro was trading up 0.3 percent at 1.2334 Swiss francs after hitting a record low of 1.2270 francs the previous day.
The euro gained support after Finland approved an EU/IMF bailout for Portugal on Wednesday, while demand from hedge funds also prompted a squeeze in euro short positions. The dollar was down 0.3 percent against the yen at 81.76 yen, with traders reporting bids at 81.20-70 yen.
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