The euro steadied against the dollar on Tuesday, but sentiment was fragile after comments by Spain's economy minister who tempered expectations of a radical and swift action by European policymakers to contain the worsening debt crisis. The single currency had gained earlier on talk policymakers were planning to boost the regional rescue fund, halve Greece's debts and recapitalise banks, all of which encouraged profit-taking on short positions after Monday's fall below $1.34.
But the bounce proved short-lived, as Spanish minister Elena Salgado said plans to extend the region's EFSF bailout fund to 2 trillion euros were not on the table. The euro was last flat on the day against the dollar at $1.3540, above an eight-month low of $1.3360 but staying vulnerable to further falls back towards this trough.
Resistance loomed at $1.3580, a 38.2 percent retracement of its September 15-26 decline, while traders reported offers above $1.3550 and more above $1.3570. The strategy to sell into a bounce in the euro was widespread as doubts persisted over policymakers' ability to craft a plan quickly to deal with the escalating crisis.
ECB Board member Lorenzo Bini Smaghi said on Monday the existing 440 billion euros in the bailout fund, known as the European Financial Stability Facility (EFSF), might be used as collateral to borrow from the European Central Bank, which would make more money available for crisis-fighting.
Austrian Finance Minister Maria Fekter said eurozone officials are set to discuss next Monday plans to leverage the EFSF. Higher-risk growth-linked currencies rebounded after a recent sharp sell-off, helped by firmer equities, with the Aussie up 0.65 percent against the US dollar at $0.9905 and the Kiwi up nearly 1 percent.
The dollar traded at 76.40 yen, hovering close to record lows around 75.94 yen and keeping alive concerns that Japan could intervene again to stem its currency's gains. The yen has strengthened nearly 6 percent so far this year. The euro stood at 103.52 yen, having bounced from a fresh decade low of 101.95 yen hit on Monday, weathering some month-end selling from Japanese exporters.
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