Euro holds gains

The euro held modest gains against the US dollar on Tuesday, bolstered by the International Monetary Fund's decision to offer new lending tools for nations at risk from the eurozone debt crisis. The boost, however, was undercut by the release of minutes of the latest US Federal Reserve meeting of November 1-2 describing how a few officials believed the outlook for modest US economic growth might warrant further policy accommodation.
Earlier on Tuesday, the US Commerce Department revised down its estimate of second-quarter economic growth to a 2 percent rate from an initial reading of 2.5 percent. While growth was slower than expected, inventory accumulation amid sturdy consumer spending strengthened views that output would pick up in the current quarter. Typically, low risk tolerances in the market have pushed cash into the US dollar on disappointing news.
The US data added to concerns that politicians on both sides of the Atlantic are failing to tackle huge debt burdens. Severe dollar funding strains continued to support the US currency as European banks scrambled to secure cash dollars. Signs that the dollar money market was seizing up added to investor concerns that the spiralling eurozone debt crisis could pummel European banks.
The IMF's lending tools are meant to help countries with solid policies already in place. It comes as concerns grow over the spread of the eurozone crisis from small economies such as Greece to larger economies such as Italy, Spain and France. The new liquidity line could be used by any country facing financing difficulties and deemed to have sound economic policies by the IMF, either in Europe or elsewhere.
The euro rose 0.10 percent to $1.3506, but was well off the session high of $1.3568. Demand from Middle Eastern participants had earlier lifted the single currency from the day's low hit in Asia. The dollar index gave up modest gains, slipping 0.042 percent to 78.269, off Monday's seven-week peak of 78.516.
A jump in Spanish bond yields to their highest in 14 years at a short-term bill issue on Tuesday highlighted market concerns about the eurozone's ability to overcome its debt crisis, although the jump was not unexpected and the euro showed little immediate reaction. Stress in the dollar money market showed no sign of abating after the three-month euro/dollar swap spread rose to 140 basis points on Monday, the highest level since late 2008. It was last around 137 basis points. Against the Japanese currency, the dollar rose 0.08 percent to 76.99 yen.